Estimate the contribution margin

Assignment Help Other Subject
Reference no: EM131400911

Q1. AUTOMOBILE INSURANCE: MORAL HAZARD AND ADVERSE SELECTION

Data from an automobile insurance company show that claims frequency and size are affected by what type of insurance is chosen by an individual. The data are from an Israeli insurer for the years 1994-1999. Table 3.1 provides relevant data. Model the claims frequency using a Poisson distribution to allow for more than one claim per policy holder) and use a Lognormal distribution for the size of claims (with the mean given in Table 3.1 and standard deviation equal to the mean). Assume that 1,000 drivers are insured by the policies, in the proportions indicated in Table 3.1. Also assume that there is no correlation between policy types. Build a simulation model to

Table 3.1 Insurance Policy Types

Policy Type

Average
Premium

Deductible

Claim
Frequency

Average
Damage/Claim

Percentage
Choosing

Regular

2,800

1,400

21.33%

11,433

76.72

Low deductible

3,640

840

27.76%

10,233

21.96

High deductible

1,960

2,520

15.05%

13,600

0.74

Very high deductible

1,920

3,640

11.37%

10,750

0.6

a. Estimate the contribution margin (revenue minus direct costs from claims-that is, what is left to cover overhead costs and profits) per insured driver-for each policy type and for the total of all drivers insured by this company.

b. See whether the differences in premiums appear to match the differences in expected costs across policies.

c. Determine the overall probability that this company will have a positive contribution. What level of contribution do you estimate there is a 95% likelihood of achieving or exceeding?

Q2. AIRLINE DELAYS

The Bureau of Transportation Statistics provides on-time data for airlines in the United States. Exercise4-2.xlsx contains all flight data for January 2010, and Exercise4-2short.xlsx contains the data for flights departing from Denver International Airport during that month. (Use the larger file if you want to test your database skills for extracting the Denver data; the smaller file already contains the extracted data for those that do not want to download the large file.)

a. Count the number of flights with departure delays (including the cancelled flights) and count the number of flights with arrival delays. Based on the count, determine a probability that a flight will have a departure delay and the probability that a flight will have an arrival delay. Assuming that, during a typical January, there are 20,000 departure flights, build a binomial distribution object to simulate the number of delays.

b. Fit distributions (without parameter uncertainty) for the length of the departure delays and the length of the arrival delays (contingent on there being a delay). Choose distributions that visually appear to fit the data best.

c. Estimate the total monthly departure and arrival delays in minutes of flights leaving DIA (for a "typical" January). Provide a 90% confidence interval for this estimate.

Q3. AIRFARES

Exercise5-2.xlsx contains data for all continental U.S. domestic air routes that average at least 10 passengers per day.' Data are provided for the originating and terminating city (and airport code) for each route, along with the average one-way distance, average number of passengers per day, market share of the largest carrier, code for the largest carrier, and the average fare charged on the route.

a. Build a multiple regression model explaining airfares as a function of distance, passengers, and market share of the largest carrier. Interpret the meaning and statistical significance of each coefficient.

b. Suppose that, due to consolidation in the airline industry, we expect that the market shares of the largest carriers will increase on average by 10% and that the average number of passengers per day will increase by two (due to better scheduling and flight connections). Provide a point estimate of the impact on the average of the airfares across all routes that would result, using your regression model. Simulate the average fare across all routes without accounting for parameter uncertainty (Hint: following Section 5.7 use the standard error of the whole regression for this. Use the fact that the regression model goes through the means of all the variables; that is, the average fare as a function of average distance, average passengers, and average market share are a point on the regression line.)

c. Using the uncertainty inherent in the data, perform a parametric Bootstrap to simulate the resulting average airfare. Compare the probability that airfares will rise as a result of consolidation) for your models with and without parameter uncertainty.

Q4. AIRLINE LOAD FACTORS

Airline load factors are a primary driver of airline profitability (Of course, prices and costs also matter: A full plane will lose money if price is less than average cost and a half-empty flight can be profitable if price is greater than average cost.) Some low-cost airlines may be profitable at load factors as low as 64%, while others may require load factors of 100% or more.' Exercise6-2.xlsx contains data for the U.S. airline industry for passenger load factors for domestic and international operations over the period of 2000 through September 2010.

a. Inspect the data and comment on whether there appear to be any trends, seasonality, or randomness in the two series.

b. Fit a time series model to each series separately and predict the next 10 months of load factors (October 2010-July 2011).

c. Fit a multivariate time series to the two sets of data and compare and discuss your forecast 10 months out with your results for part b.

Assignment Files - https://www.dropbox.com/s/6z9vhonc2j6biqr/Assignment%20Files.rar?dl=0

Reference no: EM131400911

Questions Cloud

Employees opinions on newhealthcare coverage : What type of listening would be used if Jim was trying to determine his employees' opinions on newhealthcare coverage?
Reverse order output should use a decrementing counting loop : The size of the array will be determined by input from the program user. You must use a counting loop to build and print the array.  The reverse order output should use a decrementing counting loop.
What are advantages of using electromechanical relays : What are advantages of using electromechanical relays to connect the UUT to the test equipment and instrumentation in an automated test system?
Meaning of enterprise architecture versus distributed system : Compare and contrast the meaning of enterprise architecture versus distributed system. Provide at least 1 example each of enterprise architecture and a distributed system. Discuss the advantages and disadvantages of distributed systems in a business ..
Estimate the contribution margin : Estimate the contribution margin (revenue minus direct costs from claims-that is, what is left to cover overhead costs and profits) per insured driver-for each policy type and for the total of all drivers insured by this company
Appropriate assignment folder : Instructions: Answer all questions in a single document. Then submit to the appropriate assignment folder. Each response to a single essay question shouldbe about a half-page in length (about 150 words).
What is the number of megabytes needed : Virtual Reality uses a10-bit color depth to improve bit rate. Assume you want to have a video produced with 1360x768 resolution. Using 8bit color depth, what is the number of MegaBytes (KB) needed?
Kind of attack a voip server may succumb to : As part of a data network, what kind of attack a VoIP server may succumb to?
Web for information on penetration testing : Search the web for information on penetration testing. Read up on the service offerings of commercial firms that offer penetration services. Consider what kinds of personal and technical abilities a skilled tester would have to have.

Reviews

len1400911

2/20/2017 4:09:24 AM

Sure. Here is the question packet I need help with. They are from the book - Practical Spreadsheet Risk Modeling for Management by Dale E. Lehman, Greg Nolder, and Huybert Groenendaal - if this helps. Okay. Thanks! But please be sure to use Model Risk excel plugin (http://www.vosesoftware.com/) for the doing the problems else my professor will know that I took and help. If you want, I can share the link to download the tool for 15 days.

Write a Review

 

Other Subject Questions & Answers

  Perspective of learning theory on anxiety disorders

Review the article and create a 2-3 page report on the perspective of learning theory on anxiety disorders in a Microsoft Word document, addressing the following: How does learning theory affect your understanding of the development and maintenance..

  How has platos work advanced a theory of knowledge

How do Plato's allegory of The Cave, his metaphor of the Divided Line and his doctrine The Forms advance a theory of knowledge? How has Plato's work advanced a theory of knowledge?

  John college strives to create a strong rich and vibrant

john college strives to create a strong rich and vibrant campus community with students representing a large number of

  Describe the common criticisms leveled at congress

What are some common criticisms leveled at Congress? Are they fair or appropriate? Do you think it is important that the demographics of Congress represent the demographics of the country?

  Contributors or practitioners of the adlerian therapy

Who are the important contributors or practitioners of the Adlerian Therapy. and should this theory be widely use?

  Describe the key characteristics of a whistleblower

Describe the key characteristics of a whistleblower, and briefly summarize one (1) researched instance of whistleblowing in one (1) publicly traded company within the last 3 years. Include the details of the issue that the whistleblower reported a..

  Limitations of drug therapy

The benefits of drug therapy are proclaimed in magazines and on television commercials, but there are some disadvantages, too. Discuss, in detail, the five limitations of drug therapy

  Explain the human need to build bonds and relationships do

discuss the human need to build bonds and relationships. do we have an innate need to belong? if so why? how is this

  Campus diversity

During the last couple of decades, colleges and universities have tried to increase their number of minority students by various forms of affirmative action. At Campus X, this has led to no small amount of dissension. Some students complain that the ..

  Examine and research chronic disease

Examine and research 1 chronic disease (e.g., heart disease, stroke, cancer, diabetes, arthritis, obesity) and write a paper that discusses the following: A comparison of 2 health care policies that are in place (either at the state or federal leve..

  What is the race to the bottom

What is the "race to the bottom"? What does it have to do with greater global competition

  Economic benefit doctrine

Explain the economic benefit doctrine. Describe the components of the common body of tax law (CBOTL). What role does the U.S. Congress play in creating the tax law? Briefly explain how a tax bill becomes a tax law.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd