INSTITUTE OF ACTUARIES OF INDIA

Similar documents
Financial Econometrics Jeffrey R. Russell Midterm Winter 2011

INSTITUTE OF ACTUARIES OF INDIA

INSTITUTE OF ACTUARIES OF INDIA

STATIONERY REQUIREMENTS SPECIAL REQUIREMENTS 20 Page booklet List of statistical formulae New Cambridge Elementary Statistical Tables

UCLA Department of Economics Fall PhD. Qualifying Exam in Macroeconomic Theory

Finance Solutions to Problem Set #6: Demand Estimation and Forecasting

ASSIGNMENT BOOKLET. M.Sc. (Mathematics with Applications in Computer Science) Mathematical Modelling (January 2014 November 2014)

Market and Information Economics

MORNING SESSION. Date: Wednesday, October 30, 2013 Time: 8:30 a.m. 11:45 a.m. INSTRUCTIONS TO CANDIDATES

You should turn in (at least) FOUR bluebooks, one (or more, if needed) bluebook(s) for each question.

Midterm Exam. Use the end of month price data for the S&P 500 index in the table below to answer the following questions.

Computer Lab 6. Minitab Project Report. Time Series Plot of x. Year

VaR and Low Interest Rates

MA Advanced Macro, 2016 (Karl Whelan) 1

Appendix B: DETAILS ABOUT THE SIMULATION MODEL. contained in lookup tables that are all calculated on an auxiliary spreadsheet.

Analyzing Surplus Appropriation Schemes in Participating Life Insurance from the Insurer s and the Policyholder s Perspective

CENTRO DE ESTUDIOS MONETARIOS Y FINANCIEROS T. J. KEHOE MACROECONOMICS I WINTER 2011 PROBLEM SET #6

UNIVERSITY OF MORATUWA

San Francisco State University ECON 560 Summer 2018 Problem set 3 Due Monday, July 23

MORNING SESSION. Date: Wednesday, April 26, 2017 Time: 8:30 a.m. 11:45 a.m. INSTRUCTIONS TO CANDIDATES

Stock Market Behaviour Around Profit Warning Announcements

Comparison of back-testing results for various VaR estimation methods. Aleš Kresta, ICSP 2013, Bergamo 8 th July, 2013

Data Mining Anomaly Detection. Lecture Notes for Chapter 10. Introduction to Data Mining

Data Mining Anomaly Detection. Lecture Notes for Chapter 10. Introduction to Data Mining

4452 Mathematical Modeling Lecture 17: Modeling of Data: Linear Regression

Models of Default Risk

Online Appendix to: Implementing Supply Routing Optimization in a Make-To-Order Manufacturing Network

Exponential Functions Last update: February 2008

This specification describes the models that are used to forecast

Description of the CBOE S&P 500 2% OTM BuyWrite Index (BXY SM )

Financial Markets And Empirical Regularities An Introduction to Financial Econometrics

The Economic Impact of the Proposed Gasoline Tax Cut In Connecticut

The Mathematics Of Stock Option Valuation - Part Four Deriving The Black-Scholes Model Via Partial Differential Equations

1. FIXED ASSETS - DEFINITION AND CHARACTERISTICS

Systemic Risk Illustrated

IJRSS Volume 2, Issue 2 ISSN:

Jarrow-Lando-Turnbull model

1 Purpose of the paper

A Note on Missing Data Effects on the Hausman (1978) Simultaneity Test:

Alexander L. Baranovski, Carsten von Lieres and André Wilch 18. May 2009/Eurobanking 2009

Key Formulas. From Larson/Farber Elementary Statistics: Picturing the World, Fifth Edition 2012 Prentice Hall. Standard Score: CHAPTER 3.

An Introduction to PAM Based Project Appraisal

Population growth and intra-specific competition in duckweed

Fundamental Basic. Fundamentals. Fundamental PV Principle. Time Value of Money. Fundamental. Chapter 2. How to Calculate Present Values

Description of the CBOE Russell 2000 BuyWrite Index (BXR SM )

Predictive Analytics : QM901.1x Prof U Dinesh Kumar, IIMB. All Rights Reserved, Indian Institute of Management Bangalore

Li Gan Guan Gong Michael Hurd. April, 2006

If You Are No Longer Able to Work

Is Low Responsiveness of Income Tax Functions to Sectoral Output an Answer to Sri Lanka s Declining Tax Revenue Ratio?

ECONOMIC GROWTH. Student Assessment. Macroeconomics II. Class 1

An Analysis of Trend and Sources of Deficit Financing in Nepal

Process of convergence dr Joanna Wolszczak-Derlacz. Lecture 4 and 5 Solow growth model (a)

Advanced Tools for Risk Management and Asset Pricing

Non-Stationary Processes: Part IV. ARCH(m) (Autoregressive Conditional Heteroskedasticity) Models

Objectives for Exponential Functions Activity

Problem 1 / 25 Problem 2 / 25 Problem 3 / 30 Problem 4 / 20 TOTAL / 100

Evaluating Projects under Uncertainty

Exam 1. Econ520. Spring 2017

FORECASTING WITH A LINEX LOSS: A MONTE CARLO STUDY

Actuarial Society of India EXAMINATIONS

a. If Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must i and P be?

CHAPTER CHAPTER18. Openness in Goods. and Financial Markets. Openness in Goods, and Financial Markets. Openness in Goods,

PARAMETER ESTIMATION IN A BLACK SCHOLES

Introduction to Black-Scholes Model

Ma 093 and MA 117A - Exponential Models. Topic 1 Compound Interest

Watch out for the impact of Scottish independence opinion polls on UK s borrowing costs

Final Exam Answers Exchange Rate Economics

Forecasting with Judgment

Comparison of the claims reserves methods by analyzing the run-off error

Package NPHMC. R topics documented: February 19, Type Package

Organize your work as follows (see book): Chapter 3 Engineering Solutions. 3.4 and 3.5 Problem Presentation

Option Valuation of Oil & Gas E&P Projects by Futures Term Structure Approach. Hidetaka (Hugh) Nakaoka

Economic Growth Continued: From Solow to Ramsey

R e. Y R, X R, u e, and. Use the attached excel spreadsheets to

The Empirical Study about Introduction of Stock Index Futures on the Volatility of Spot Market

A Study of Process Capability Analysis on Second-order Autoregressive Processes

Government Expenditure Composition and Growth in Chile

Supplement to Models for Quantifying Risk, 5 th Edition Cunningham, Herzog, and London

The macroeconomic effects of fiscal policy in Greece

Futures Trend Strategy Model Based on Recurrent Neural Network

Hull-White one factor model Version

Eris EURIBOR Interest Rate Future

Technological progress breakthrough inventions. Dr hab. Joanna Siwińska-Gorzelak

University College Dublin, MA Macroeconomics Notes, 2014 (Karl Whelan) Page 1

Unemployment and Phillips curve

VERIFICATION OF ECONOMIC EFFICIENCY OF LIGNITE DEPOSIT DEVELOPMENT USING THE SENSITIVITY ANALYSIS

Midterm Exam. b. What are the continuously compounded annual returns for the two stocks?

Session 4.2: Price and Volume Measures

A Regime Switching Independent Component Analysis Method for Temporal Data

Applications of Interest Rate Models

TESTING FOR SKEWNESS IN AR CONDITIONAL VOLATILITY MODELS FOR FINANCIAL RETURN SERIES

Labor Cost and Sugarcane Mechanization in Florida: NPV and Real Options Approach

Valuing Real Options on Oil & Gas Exploration & Production Projects

On the Impact of Inflation and Exchange Rate on Conditional Stock Market Volatility: A Re-Assessment

Guide to the REX Indices

Problem 1 / 25 Problem 2 / 25 Problem 3 / 11 Problem 4 / 15 Problem 5 / 24 TOTAL / 100

ASSESSING PREDICTION INTERVALS FOR DEMAND RATES OF SLOW-MOVING PARTS FOR A NATIONAL RETAILER

Volume 31, Issue 1. Pitfall of simple permanent income hypothesis model

How Well Does the Vasicek-Basel AIRB Model Fit the Data? Evidence from a Long Time Series of Corporate Credit Ratings Data

Some of the more important issues that need to be resolved before hedonic regressions can be routinely applied by statistical agencies include:

Transcription:

INSTITUTE OF ACTUARIES OF INDIA EXAMINATIONS 9 h November 2010 Subjec CT6 Saisical Mehods Time allowed: Three Hours (10.00 13.00 Hrs.) Toal Marks: 100 INSTRUCTIONS TO THE CANDIDATES 1. Please read he insrucions on he fron page of answer bookle and insrucions o examinees sen along wih hall icke carefully and follow wihou excepion 2. Mark allocaions are shown in brackes. 3. Aemp all quesions, beginning your answer o each quesion on a separae shee. However, answers o objecive ype quesions could be wrien on he same shee. 4. In addiion o his paper you will be provided wih graph paper, if required. AT THE END OF THE EXAMINATION Please reurn your answer book and his quesion paper o he supervisor separaely.

Q. 1) A veeran acuary believes ha he claims from a paricular ype of policy follow he Burr disribuion wih parameers 2, 1000 and 0. 75. As per his recommendaion, he insurance company has se a deducible such ha 25% of he losses resul in no claim o he insurer. (i) (ii) Calculae he size of he deducible. An acuarial rainee suspecs ha he deducible se by he veeran acuary is based on more of surmise han daa. She has access o daa on 1250 claims (ne of deducible). Coninuing wih he assumpion of he Burr disribuion for he original claims, she wishes o esimae is parameers from he available daa, by using he mehod of maximum likelihood. Give an expression for he probabiliy densiy funcion of he observed daa (ne of deducible), and he likelihood funcion ha has o be maximized. (iii) Give an expression for he maximum likelihood esimae (MLE) of he rue fracion of he losses ha resul in no claim o he insurer, in erms of he MLE of he parameers. (3) (4) (2) Q. 2) The annual number of claims on a paricular risk has he Binomial disribuion wih maximum claim number 10 and average claim number. The prior densiy of he n1 n2 n n 1! 1 1 2 parameer is 1, where n 1 and n 2 are known posiive 10 n1! n2! 10 10 inegers. The number of claims in he years 2007, 2008 and 2009 were X 1, X 2 and X 3, respecively. (i) Deermine he prior mean of. (2) (ii) Deermine he maximum likelihood esimaor of. (2) (iii) Deermine he Bayes esimae of he number of claims in he year 2010, under he squared error loss funcion. (4) (iv) Show ha he esimaor of par (iii) has he form of a credibiliy esimae, and idenify he credibiliy facor. (2) (v) Deermine he credibiliy esimaor of under EBCT Model 1 and compare wih he resul of par (iii). (6) Q. 3) The aggregae claims process for a risk is a compound Poisson process wih rae 50 per annum. Individual claim amouns are Rs. 2500 wih probabiliy 0.25, Rs. 5000 wih probabiliy 0.5, or Rs. 7500 wih probabiliy 0.25. The premium loading is 10%. Le S denoe he aggregae annual claim amoun. (i) Calculae he mean and variance of S. (2) (ii) Using a normal approximaion o he disribuion of S, calculae he iniial surplus required in order ha he probabiliy of ruin a he end of he firs year is 0.05. (3) (iii) A reinsurer offers o sell o he insurer proporional reinsurance for 25% of he claims, for premium loading 15%. If his offer is acceped, calculae he modified iniial surplus required in order ha he probabiliy of ruin a he end of he firs year is 0.05. (4) Page 2 of 5 [16]

Q. 4) The cumulaive incurred claims (in housands of rupees) on a porfolio of insurance policies are as given in he following able. Acciden Year Developmen Year 0 1 2 3 2006 2,463 2,749 3,529 3,980 2007 3,013 3,278 3,608 2008 3,321 3,716 2009 3,953 The earned premium for he year 2009 is Rs. 6,472,000, while he paid claims are Rs. 1,731,000. (i) Assuming ha he Ulimae Loss Raio is 88%, calculae he reserve needed for 2009 using he Bornhueer-Ferguson (basic) mehod. (8) (ii) Sae he assumpions underlying he use of he above mehod. (3) Q. 5) Consider he auoregressive process given by Y Y Z, 2 2 Z being whie noise wih mean zero and variance. (i) Wha is he range of values of he real valued parameer so ha he process is saionary? (2) (ii) Obain a represenaion of Y as a Z, by specifying a j j 0, a 1, explicily. (3) j 0 (iii) Using par (b) or oherwise, find an expression for he variance of Y in erms of 2 and. (2) (iv) Compare he resul of par (iii) wih he variance of an AR(1) process and explain any similariy or dissimilariy. (2) Q. 6) The sample ACF and PACF values a lags 1 o 10 of a ime series of lengh 500, are as given below. Lag 1 2 3 4 5 6 7 8 9 10 SACF -0.7793 0.6180-0.4824 0.386-0.341 0.3172-0.2989 0.2728-0.2181 0.163 SPACF -0.7793 0.0275 0.0188 0.0232-0.084 0.0538-0.0289 0.0004 0.0616-0.0301 (i) Deermine hrough a saisical es wheher he ime series can be regarded as whie noise. (5) (ii) Indicae, wih reasons, if an AR(p) or an MA(q) model may be appropriae for his ime series, and if so, wha could be he model order. (4) Page 3 of 5 [11]

Q. 7) Lis six perils ha are ypically insured agains under a household building policy. [3] Q. 8) A claim analys of a healh insurance company examines daa on a porfolio of healh insurance policies. He plans o use a generalized linear model for he claim amouns, involving he following raing facors. SA : Sum assured (x), AG : Age group, OC : Occupaion, a coninuous variable. a facor wih 10 levels. a facor wih 6 levels. A preliminary analysis produces he following summary for he models considered by he analys. Model Linear predicor No of parameers Scaled deviance SA x 2 238.4 SA + AG?? 206.7 SA + AG + SA * AG?? 178.3 SA * AG + OC?? 166.2 SA * AG * OC?? 58.9 (i) Complee he able by filling in he cells wih quesion marks. (4) (ii) On he basis of he scaled deviance, which model should he analys choose? (3) (iii) Wha furher consideraions should be given before he analys makes a recommendaion abou he choice of he model? (2) Q. 9) An acuary uses he following algorihm o generae pseudorandom numbers X from he Poisson disribuion wih mean. Sep 1: Inpu lambda. Sep 2: Se X=0; Z=0. Sep 3: Se Y = Random sample from he uniform U(0,1) disribuion. Sep 4: Incremen Z by he amoun ln(y)/lambda. (ln is he log funcion). Sep 5: If Z<1, hen incremen X by 1; GO TO Sep 3. Sep 6: Oupu X. Sep 7: GO TO Sep 2 for generaing he nex value of X. (i) By analysing he above algorihm, show ha i generaes he value X 0 wih he correc probabiliy. (3) (ii) If five successively random samples from he uniform disribuion, generaed in Sep 3, happen o be 0.564, 0.505, 0.756, 0.610 and 0.046, and 2, follow he above algorihm o generae as many samples of X as his informaion permis. (4) (iii) Using he uniformly disribued random samples and he value of given in par (ii), generae samples (as many as possible) from he Poisson disribuion, using he Page 4 of 5

inverse disribuion ransform mehod. (5) [12] Q. 10) (i) Sae he individual risk model, wih a clear descripion of he assumpions. (5) (ii) How is his model differen from he collecive risk model? (3) Q. 11) The owner of a personal compuer has o decide wheher o sign an Annual Mainenance Conrac (AMC) or o pay for repair separaely on each occasion of compuer faul. The AMC coss Rs. 1000, and provides for an unlimied coun of repair services. In he absence of he AMC, he servicing agency charges Rs. 300 for each repair. The owner assumes he probabiliy disribuion of he annual number of fauls as follows. Number of fauls 0 1 2 3 4 5 More han 5 Probabiliy 0.1 0.1 0.2 0.3 0.2 0.1 0 (i) Form he loss marix for he owner of he compuer in respec of he above decision. (2) (ii) Wha is he minimax decision? (1) (iii) Wha is he Bayes decision? (2) ************************ [8] [5] Page 5 of 5