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# The University of New South Wales

## ACTL 3141/5104 Actuarial Models and Statistics

Mid-Term ExamSession 1, 2018

SOLUTIONS

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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+2 1998

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

## insurance contract at age  survives one more year.

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

## insurance contract at age  dies between ages  + 4 to  + 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 .

−µ l+1
l 
l+1
l

d. [5 mark ]
e+4 = p+4 (1 + e+5 )
l+5
= (1 + e65 )
l+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

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 dierent 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 eect
of type of treatment on survival times.
We can then either:
• Construct a condence interval, say at 95%, on β using the standard errors and if
these interval contains 0 then dierence between treatments is not signicant and if
it does not contain 0 then the hazard rates of the two treatment are dierent .
• 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 dierence in the hazard rates
between the dierent 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.

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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 averagethat 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 coecient 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