IFoA CS2 Practice Questions - IFoA CS2 Risk Modelling And Survival Analysis Exam

For a Pareto distribution with parameters α and λ, which property makes it a popular model for large insurance losses?

It has a heavy (slowly decaying) tail, capturing the chance of very large claims It is bounded above, so claims cannot exceed a fixed maximum Its mean always equals its variance It is symmetric about its median

Correct Answer:

It has a heavy (slowly decaying) tail, capturing the chance of very large claims

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