218 • Big Data Analytics
We will assume all of our policies are written for $1 million, and rein-
surance is not an option. e expected payout on any given year will be
$44,000 for each $1 million in crops insured. We price our policy at $61,600
($44,000×1.4) to be able to cover disasters yet still be able to pay sta and
keep our investors happy. If we underestimate our risk and we have an
especially disastrous year costing us double or triple what a normal year
would cost us, then we witness a calamity. If the same event happens many
times over a couple of decades, then we are probably using the wrong dis-
tribution as a tool for prediction. is series of infelicities occurred in
nance, especially in the 2007–2008 economic debacle. ere are ...