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Variance formula -Guo

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  • Variance formula -Guo

    Var (S ) =Var (NX ) =Var (N )E^2 ( X ) + E (N)Var ( X )

    This is a formula Guo gives for solving a geometric problem-
    N is the number of problems in a year, and X is the amount of the loss
    (N is the geometric part, N and X are independent)

    Where does this formula come from?
    (It's on page 126 -127 of the current manual, in the section on Geo. random vars, problem 3)

    He says we should memorize it.

  • #2
    Law of Total Variance I believe, but it's the formula for Variance of Aggregate distribution. Usually N is frequency and X is Severity.

    Edit: thank god for atomic:

    http://www.actuarialoutpost.com/actu...egate+variance
    Last edited by NoMoreExams; April 14 2009, 04:14 PM.

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