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INSTITUTE AND FACULTY OF ACTUARIES

EXAMINERS’ REPORT
September 2015

Subject CT3 – Probability and
Mathematical Statistics
Core Technical
Introduction
The Examiners’ Report is written by the Principal Examiner with the aim of helping candidates, both
those who are sitting the examination for the first time and using past papers as a revision aid and
also those who have previously failed the subject.
The Examiners are charged by Council with examining the published syllabus. The Examiners have
access to the Core Reading, which is designed to interpret the syllabus, and will generally base
questions around it but are not required to examine the content of Core Reading specifically or
exclusively.
For numerical questions the Examiners’ preferred approach to the solution is reproduced in this
report; other valid approaches are given appropriate credit. For essay-style questions, particularly the
open-ended questions in the later subjects, the report may contain more points than the Examiners
will expect from a solution that scores full marks.
The report is written based on the legislative and regulatory context pertaining to the date that the
examination was set. Candidates should take into account the possibility that circumstances may
have changed if using these reports for revision.
F Layton
Chairman of the Board of Examiners
December 2015

 Institute and Faculty of Actuaries

4. differentiation) were poorly answered. In some parts candidates failed to distinguish between the need for different types of test (e. The performance was generally good. unless excessive rounding led to significantly different answers. reasonable comments that were different from those provided in the solutions also received full credit where appropriate. 3. In general. 4. Rounding errors were not penalised. B. All mathematically correct and valid alternative solutions or answers received credit as appropriate. General comments on the aims of this subject and how it is marked 1. Some of the questions in this paper admit alternative solutions from these presented in this report. 2. 3. The aim of the Probability and Mathematical Statistics subject is to provide a grounding in the aspects of statistics and in particular statistical modelling that are of relevance to actuarial work. questions that required moderate mathematical calculus skills (e. Comparative pass rates for the past 3 years for this diet of examination Year September 2015 April 2015 September 2014 April 2014 September 2013 April 2013 Page 2 % 68 66 57 60 64 59 .g.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report A. candidates were only penalised once. with most questions being well answered. as opposed to a t-test). General comments on student performance in this diet of the examination 1. C.g. normal z-test. or different ways in which the provided answer can be determined. 5. In cases where the same error was carried forward to later parts of the answer. In questions where comments were required. 2. The pass rate was in line with previous sessions and there were a number of excellent scripts achieving very high scores.

Q2 (i) We have mean = 1. the mean is the same.22)0.  dy y Page 3 .5 = 292.5 = 6. In part (ii) the explanation about the sd was not always convincing. However the sd has increased as the two new claims are further away from the mean as compared to the two claims in the first sample. but not materially different. Solutions Q1 (i) New sum is (11860 – 770 – 510 + 1000 + 280) = 11860 New sum of squares: (8438200 – 7702 – 5102 + 10002 + 2802) = 8663600 Therefore: New sample mean = 11860/20 = 593 New standard deviation (sd) = {(8663600 – 118602/20)/19}0.325 For the mode we need to maximise the probability density function (pdf): f  y   1 y y e    log  f  y     log     log           1 log  y   y and d  1  1 log  f  y       0 y  .2 = 8 and sd = (1.95 (ii) Since the sum of the two new claims is the same as those replaced. Variation in the pass rate between sessions is expected as different cohorts of students sit the examination – however the increasing rates in recent diets reflect stronger performance from the candidates. Part (i) was generally well answered.6/0.6/0.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report Reasons for any significant change in pass rates in current diet to those in the past: The pass rate for this examination diet is slightly higher than the April 2015 rate.

96 0.1 approximately. the mode will coincide with the mean and therefore deviations of this measure from 0 will indicate asymmetry. and very few mentioning the standardisation. Page 4 . Part (ii) was not well answered. 0. with many candidates failing to comment on the relationship between the mean and the mode.166 ˆ 1.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report   d2  1 Also log f y    0. * 2. 6.202).019 1. Note that this is a typical calculus maximisation exercise.e.  83  0.791 . Also.130.541    0.166 1.4 s12 1 1 2. Many candidates failed to work out the mode correctly. * F * . the measure is standardised by dividing with the standard deviation to make it scale-free.5 3.   (ii)  1  3. Q3 S12 12 / ~ F24. and the confidence interval is n given by 83  0.530. 4.166 / 500 which gives (0.4  * .24 2   s2 F24.5 Generally very well answered.12 so the confidence interval is given by S22 22  s12   2. Q4 (i) We have ˆ    N  0.325 For unimodal symmetrical distributions. 0.96 ˆ / 500 with ˆ  500 i.066   2    12.12 s2   1.       dy 2 y2   So mode is at y  Therefore.

1470326 5116701 61. Q5 (i) r (ii) t 2606.] Generally well answered.0216 t has t-distribution with 23 d. [Equivalently nλ is large. Q6  SS R  49  7 2  6 2  9 2  8. We conclude that alcohol consumption is different in different areas.695.] Well answered. so normal approximation is valid. Fisher’s transformation gives z = 0. Note that the test in part (ii) is two-sided.120 distribution is 4.147 2 2 2   700 SS B 700 147  2   6. Page 5 .325 SS R 2 8134 147 This is clearly a rather large value since the 1% point from a F2.714] the null hypothesis cannot be rejected at 10% level of significance.71 1  0.44 r 25  2 1 r2  0.147  23  0. Since this is a two-sided test and 0.714.134  Y 26  22  27  25 3  SS B  50  26  25    22  25    27  25  F2. and conclusion is the same as above.f. The 95% quantile is 1.787.71 is within the interval [–1.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report (ii) The sample size is large here. Some candidates failed to properly justify the use of the normal approximation. so the null hypothesis is rejected.714.96  0. 1.) [Alternatively. (Note that other significance level may also be used.

Page 6 . Q7 1 1 0  0   1 0 4 E Y |X  1  0 1 4 (i) E  X |Y  1  (ii) E  X |Y  1  (iii) 1 0  0  1 4 1 0  0  1 4 1 1 1 1  0  4 1 4  0 . 419  y 2  102. Candidates who were able to calculate correctly the various sums of squares did well. 201 SST = 8. E  X |Y  0  4 1 2 2 1 4 0 E  X   E  E  X | Y   E  X | Y  1  P Y  1  E  X | Y  0  P  Y  0   E  X | Y  1  P Y  1 1 1 1 1 1 and E  X   0    0   4 2 2 4 4 Some reasonable answers. but generally a mixed performance. so working needs to be shown to gain full marks. 750  40.834  yB2  yC  1. Note that the question asks candidates to “determine” the various expectations.350  25. the following sums can be computed:  y A  1.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report [Alternatively. Note that the main answer provided here is computationally more efficient than the alternative answer (which most candidates preferred).964  yC2  y  3.584 SSB = 700 ] Mixed answers.300  y 2A  yB  1.100  36.

Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report Q8 (i) P  X A  2  1  FA 1  1  0. Then P[ X 1  1| A  P A | X 0  1]  P  X A  1 P  X A  1 P  A P  X 0  1    (e0.98248  0.2 / 0.05*0.1*0.2* 0.05 *0.0794  0.6  0.01709 Page 7 . P[X 1  1|X 0  1]  P[{X 1  1 A | X 0  1}  P {X 1  1 B | X 0  1}]  P[{X 1  1C | X 0  1}] The first probability is given as   P[{ X 1  1}  A|X 0  1]  P[ X 1  1| A  X 0  1  P A | X 0  1]  P[ X 1  1| A  P A | X 0  1] where the last equality follows from conditional independence of X 1 from X 0 given group membership.07938286 . and X 1 be the number of claims that will be submitted in the current year.2  e0.0794 Let X 0 be the number of claims submitted last year.06754 Similarly P[{ X 1  1}  B|X 0  1]  P  X B  1 2 P[{ X 1  1}  C |X 0  1]  P  X C  1 2 P B P  X 0  1   P C  P  X 0  1    0.01752 using tables (ii) P  X A  1 P  A  P  X B  1 P  B   P  X C  1 P C   e0.2  0.2  e0.2*0.4125 0.2)2 *0.2 *0. (iii) Let X 0 be the number of claims submitted last year P  A | X 0  1    (iv) P  X A  1 P  A P  X 0  1   = e0.02062  0.2 *0.2 *0.1 *0.

Then we want P    Z 0.6   2(1  P Z  1.    D  X 1  X 2 ~ N 0. with other parts leading up to this.975   2Z0. It is a more challenging question. Then the estimated survey height is Normally distributed with variance 2 / n.551 1.10521 Q9 (i) Part (i) Well answered. Part (ii) Generally well answered.983   2 1  0.06754 0.95 So for the interval width for one observation to be equal to 10 we need:    Z0. 2 2 / 20  N 0.976   0.048 Page 8  . Many candidates did not attempt it.96  10  (b) Let n denote number of satellite passes.6 or D  1.  2 /10  P-value is given as:   P  D  1. although some candidates over-complicated the answer.01709  0. (a) Let  denote the standard deviation of an estimate. Part (iii) Reasonably well answered. Then under H 0 : heights are the same.96 2  1  n   3. Part (iv) This was not well answered.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report Thus: P[X 1  1|X 0  1]  0.6   2 P  D  1.96 1.02062  0.92   100 n Let X1 and X 2 denote the survey estimates for the two peaks.975  X    Z 0.975   0.6 /  / 10  2 1  P  Z  1.975      Z0.975  2*1. As before we want 2 (ii) 5  2.

62  6. So do not reject H 0 : no difference in means at 5% significance level. sP2    1 19*2. The performance in parts (ii) and (iii) was mixed. As the result is given in the question.55 sP 20 10 test statistic ~ t20 20 2  t38 .984 2 1 2. Q10 (i) We have X e   X i e  n   i i and L      Xi !  Xi ! i 1 n i   l     log  L    n  log     X i  log   X i !   i  i  and d l     0  n  X i /   0  ˆ  X i / n  X d i i Page 9 .6 1. Part (i) was generally well answered.52  19*2.96. Quantile is 2.983 can be compared with the normal quantile 1.505 20  20  2 test statistic = 1.024 at 2.5%. with the second being lower. which was one of the main points of the question. However the tests gave different results. (iv) Both systems gave the same estimate of difference and almost the same standard deviation.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report Therefore reject H 0 at the 5% significance level [Alternatively. the value of the statistic z = 1.6   1.] (iii) t-test – we assume equal variance as the same system is being used. Many candidates failed to demonstrate understanding of which statistic must be used in each of the two tests. candidates needed to clearly show how to obtain it. We did not reject that there was no difference for the test in part (iii) as there was greater uncertainty since we did not know the standard deviation beforehand.

CRlb  approximately with CRlb   1  d2  E  2 l    d      1 E  X i /  2 i   2    E( X i ) n i  Therefore an approximate 95% confidence interval is given by ˆ  1. X  1. The estimator in part (i) is based on more information. have also been problematic in recent sessions and candidates are encouraged to practise more with this fundamental concept in statistics. likelihood is given as  L     e K  1  e  n K   l     log  L    K    n  K  log 1  e   and d e ˆ  log  K    l     0  K   n  K  0   d 1  e n (b) (iv) If K = 0 the estimate of λ is infinity.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report (ii) Using asymptotic properties of the maximum likelihood estimator (MLE) ˆ ~ N  . Parts (i) and (ii) mostly well answered.96 and replacing for the variance: ˆ  1. as the exact values of the data are known. so we need K ≥ 1. Page 10 . Answers to questions involving the likelihood function of a model that may not be typical.96 n X ˆ . whereas in part (iii) only partial information is available. i.e. Therefore the estimator in part (i) should be more reliable and is preferable. In part (iii) many candidates did not use the correct likelihood form.96 n n [Could also use central limit theorem with normal approximation to Poisson] (iii) (a) We have X i  0 with probability e  and X i  0 with probability 1  e Therefore.

67  60  12.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report Q11 (i) Test statistic: 2 Snew  2 Sold  2 Snew 2 Sold ~ F24.869  61 61 S xx  2. we have: s 2p  24  16.67  1.7 12.08 Therefore.67 24 2.98 and 2.08  13.60 1  1   xi2  25  xi   24   25  2    800  25*42  16. 200  3002 / 61 = 12. [Alternatively.7 and observed value is F 16. we can use the z statistic: z (iii) 4  4.06 1   1 13.05  25 61 Sax  ai xi  1 1 ai xi  30.39     25 61  The 0.08 60 The 95% quantile of F24. 000  4. 200  3002 / 61  724.38  1. There is no evidence to suggest that the mean maintenance costs of new buildings are different from mean maintenance costs of old buildings. (ii) Assuming that the two population variances are equal.67 12.987 ] 16.60 is 1.500*300  7.92  0. if we samples are considered large.975 quantile (2-sided test) of the t84 distribution is between 1.00.6 Page 11 . there is no evidence (at 5% level) to suggest that the variance for new buildings is larger.39 84 100 300  25 61 t  1.

04511 174. 400  4.6 61*30. 000  0.59 61 4500   ˆ  Or:   4. 433 300  0. 433 ˆ  A.5002 / 61  174.04511 10. 000  4. using the results in part (iii): ˆ  7. 400 Or.869  0. with some errors in the calculations.500 ˆ   1.04511* 61  1. X   (iv) ˆ  Sax Saa S xx  7. 433*724. END OF EXAMINERS’ REPORT Page 12 . 400  4. 640.500*300 61*506.500 2  480.04511*4.59  Generally well answered.92  0.869  0.7 174.Subject CT3 (Probability and Mathematical Statistics Core Technical) – September 2015 – Examiners’ Report Saa  506.