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The number of hurricanes that will hit a certain house in the next ten years is Poisson distributed with mean 4. Each hurricane results in a loss that is exponentially distributed with mean 1000. Losses are mutually independent and independent of the number of hurricanes. Calculate

Sagot :

MrRoyal

Answer:

The variance of total loss is 8000000

Step-by-step explanation:

Let

[tex]X \to[/tex] Number of hurricane

Poisson [tex]E(X) = 4[/tex]

[tex]Y \to[/tex] Loss in each hurricane

Exponential [tex]E(Y) = 1000[/tex]

[tex]T \to[/tex] Total Loss

Required

The variance of the total loss

This is calculated as:

[tex]Var(T) = Var(E(T|X)) + E(Var(T|X))[/tex]

Where:

[tex]E(T|X) \to[/tex] Expected total loss given X hurricanes

And it is calculated as:

[tex]E(T|X) = E(Y) *N[/tex] --- Expected Loss in each hurricane * number of loss

[tex]Var(T|X) \to[/tex] Variance of total loss given X hurricanes

And it is calculated as:

[tex]Var(T|X) = Var(Y) * N[/tex] ---- --- Variance of loss in each hurricane * number of loss

So, we have:

[tex]Var(T) = Var(E(T|X)) + E(Var(T|X))[/tex]

[tex]Var(T) = Var(E(Y) * N) + E(Var(Y) * N)[/tex]

For exponential distribution;

[tex]Var(Y) = E(Y)^2[/tex]

So, we have:

[tex]Var(T) = Var(E(Y) * X) + E(E(Y)^2 * X)[/tex]

Substitute values

[tex]Var(T) = Var(1000 * X) + E(1000^2 * X)[/tex]

Simplify:

[tex]Var(T) = Var(1000 * X) + 1000^2E(X)[/tex]

Using variance formula, we have:

[tex]Var(T) = 1000^2Var(X) + 1000^2E(X)[/tex]

For poission distribution:

[tex]Var(X) = E(X)[/tex]

So, we have:

[tex]Var(X) = E(X) = 4[/tex]

The expression becomes:

[tex]Var(T) = 1000^2*4 + 1000^2*4[/tex]

[tex]Var(T) = 1000000*4 + 1000000*4[/tex]

[tex]Var(T) = 4000000 + 4000000[/tex]

[tex]Var(T) = 8000000[/tex]

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