I am reading an old book "Foundations of Casualty Actuarial
Science (Fourth Edition)" by the CAS published in 2001, in order to learn some reinsruance pricing approaches.
In Chapter 7 "Reinsurance", there is a model called Censored Pareto model, as shown in the picture attached.
However, it can be seen that F(1) is not equal to 1 as there is no definition for x>1. So it is not a reasonable probability model, is it?
In addition, when it computed E[x;1], it utilized the limited expected value equation. But the latter only applies to a Pareto distribution which is not censored. So the result seems to have something wrong.
Anyone holds interest in that question? Thanks in advance.
Science (Fourth Edition)" by the CAS published in 2001, in order to learn some reinsruance pricing approaches.
In Chapter 7 "Reinsurance", there is a model called Censored Pareto model, as shown in the picture attached.
However, it can be seen that F(1) is not equal to 1 as there is no definition for x>1. So it is not a reasonable probability model, is it?
In addition, when it computed E[x;1], it utilized the limited expected value equation. But the latter only applies to a Pareto distribution which is not censored. So the result seems to have something wrong.
Anyone holds interest in that question? Thanks in advance.
About a kind of Pareto model