3.17 Insurance company losses of a particular type are to reasonable approximation normally distributed with a mean of $150 million and standard deviation of $50 million. (Assume no different between loses in a risk neutral world and losses in the real world). The one year risk rate is 5%. Estimate the cost of the following
A) a contract will pays $100 million in one year time 60% of the insurance company%u2019s cost on a pro rata basis
B) A contract that pays $100 million in one year time if losses exceed $200 million