CAS Exam 7 Spring 2018, Question 11
Study guide: Exam 7
An actuary is using a GLM bootstrap model to estimate the reserves for a line of business. The model residuals by accident year and development period are:
Model Residuals as of (months):
| Accident Year | 12 | 24 | 36 | 48 | 60 |
|---|---|---|---|---|---|
| 2013 | 100 | -100 | -50 | 0 | 50 |
| 2014 | 100 | -100 | -20 | 10 | |
| 2015 | -80 | 80 | 0 | ||
| 2016 | 45 | -70 | |||
| 2017 | 0 |
Part a (0.5 points)
Briefly describe heteroscedasticity and identify an issue it may cause when using a GLM bootstrap model.
Part b (0.75 points)
Evaluate whether development period heteroscedasticity exists.
Part c (0.5 points)
Describe a method to adjust for heteroscedasticity.
Answer this question and see the worked solution