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The University of New South Wales

ACTL 3141/5104 Actuarial Models and Statistics


Mid-Term ExamSession 1, 2018

SOLUTIONS

1
Question 1 [24 marks]

a. [4 marks ]
A 5-year select-and-ultimate mortality table is a table where mortality depends both on
age and age at entry (or selection) to the group, [x]. . After the selection period, 5 years
in this case, the lives experience the ultimate mortality .
b. [9 mark ] Derive and compute the following quantities and explain in words what each of
these quantities represents:
i. [4 marks ] p = = = 0.9980
l[62]+2 1998

This is the probability that a policyholder who is aged [62] + 1 and bought a life
[62]+1 l[62]+1 2002

insurance contract at age [62] survives one more year.


ii. [5 marks ] q = p − p = − =
3|2 [60]+1 3 [60]+1 5 [60]+1
l[60]+4 l66 2286−2091
= 0.08471
This is the probability that a policyholder who is age [60] + 1 and bought a life
l[60]+1 l[60]+1 2302

insurance contract at age [60] dies between ages [60] + 4 to [60] + 6.


c. [6 mark ] As the force of mortality is constant within each integer age x and x + 1, we
have p = e = . Then µ = − log = 0.0015 .
[65]
−µ[65] l[65]+1
l[65] [65]
l[65]+1
l[65]

d. [5 mark ]
e[60]+4 = p[60]+4 (1 + e[60]+5 )
l[60]+5
= (1 + e65 )
l[60]+4
2276
= (1 + 19.5) = 20.41
2281

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Question 2 [31 marks]

a. [4 marks ] Type II right censoring as the study was terminated after a pre-determined
number of failures. Random censoring of the phone which exploded.
b. [4 marks ] We have
  
d1 d2
ŜKM (12) = 1− 1−
n1 n2
  
2 3
= 1− 1−
12 10
= 0.5833

c. [4 marks ] We have d = 2 as there were two phones that ran out of battery at time
t = 16.
3

We have n = n − d − c = 10 − 3 − 1 = 6 as there was a censored observation at time


3

14.
3 2 2 2

d. [4 marks ] From the Kaplan-Meier estimate we have Ŝ (18) = 0.3889. . Therefore


1 − 0.3889 = 61.11% of phones would be expected to run-out of battery before 18 hour
KM

and would fall under this money back guarantee.


e. [6 marks ] We can assume that eventually all phones will run out of battery.
It could thus be reasonable to assume that Ŝ (t) either goes to 0 at t = 24 or that it
decays from Ŝ (24) = 0.2917 and eventually reaches 0.
KM
KM

f. [9 marks ] Since Samsung estimate Ŝ (24) = 0.2917 is dierent from the 0.2727 reported
by the subcontractor, her story is internally inconsistent.
KM

The Kaplan-Meier estimate at t = 24 of 0.2727 would be obtained had only 11 phones


been tested at the start, a no phone being censored.
Since in this case there are no censored observation before t = 24 and there were 11
phones tested and 3 still running at t = 24, we have Ŝ (24) = 3/11 = 0.2727.
KM

Alternatively, one can do the KM table with only 11 phone and no censoring.
j t n d Ŝ (t )
1 9 11 2 0.8182
j j j KM j

2 12 9 3 0.5454
3 16 6 2 0.3636
4 24 4 1 0.2727

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Question 3 [16 marks]

a. [8 marks ] The test statistic is


Z12
χ2 =
V ar(Z1 )
(−0.4 − 0.4286 + 0.8889 − 0.5 − 0.5)2
=
0.24 + 0.2449 + 0.4321 + 0.25 + 0.25
(−0.93968)2
=
1.41700
= 0.62315.

This needs to be compared to a chi-square distribution with 1 degree of freedom . Since


0.6 is the 56.14%-ile of such a distribution (see page 164 of the formula book), the p-value
is around 44% , which means that we cannot reject the null hypothesis that the hazard
rates for surgery and immunotherapy are the same. Comparisons against the critical
value were also accepted.
b. [8 marks ] We can use the following Cox-regression
λ(t; z) = λ0 (t) exp (βz) ,

where z = 1 if the patient is treated with surgery and z = 0 if treated with immunotherapy
.
With this model we can get an estimate β̂ using pMLE which would measure the eect
of type of treatment on survival times.
We can then either:
• Construct a condence interval, say at 95%, on β using the standard errors and if
these interval contains 0 then dierence between treatments is not signicant and if
it does not contain 0 then the hazard rates of the two treatment are dierent .
• Test the null hypothesis β = 0 using the Wald test or the log-likelihood ratio test.
If this hypothesis is rejected then there is evidence of a dierence in the hazard rates
between the dierent treatments.
In the above, details such as the expressions for the test statistics or the distribution of
the statistic under the null hypothesis were required for full marks.

4
Question 4 [29 marks]

a. [3 marks ] z = z = z = 0, that is female student with no work experience who graduated


at age 18.
1 2 3

b. [6 marks ] Holding the other covariates constant, having work experience increases the
hazard of nding a job by a factor of e = e = 1.1709 on averagethat is, increases
βˆ2 ˆ
0.1578

the hazard of nding a job by 17 percent.


Similarly, any additional year of age at graduation multiplies the hazard of nding a job
by a factor of e = e = 0.9807, a decrease of about 2 percent.
βˆ3 −0.0194

c. [8 marks ] The relative risk of a male student aged 24 at graduation who has work expe-
rience with respect to a women aged 23 at graduation and who has no work experience
is: λ (t; z = (1, 1, 24))
r= = eβ1 +β2 +β3 = 1.2231
λ (t; z = (0, 0, 23))
Therefore the probability that a men aged 24 with work experience has not found a job
after 1 year is:
S (1; z = (1, 1, 24)) = [S (1; z = (0, 0, 23))]r
= 0.41.2231
= 0.3260

d. [8 marks ] A suitable statistical test is the log likelihood test . The null hypothesis is that
the coecient of the new term representing international/domestic is zero.
We compare the model with and without the extra parameter. If the log-likelihoods for the
two models are L and L respectively, then the test statistic is −2(L −L ).
with without without with

This test statistic has a chi-squared distribution with one degree of freedom (since we
only need one parameter to code international/domestic students).
If the test statistic is greater than 3.84 (the chi-squared critical value at 95% with 1 degree
of freedom), we reject the null hypothesis and conclude that the international/domestic
term does not improve the model.
e. [4 marks ] The log cumulative hazard between men and women don't look parallel and
crossover. This suggests that the proportional hazard assumption for the gender covariate
is invalid.

End of Paper