CAS Exam 8 Fall 2014, Question 3
Study guide: Exam 8
The random component of a generalized linear model must come from the exponential family of distributions.
The variance of a distribution from the exponential family can be expressed using the following formula:
Var(Y_i) = \frac{\phi V(\mu_i)}{\omega_i}
Part a (0.5 points)
Define the parameters \phi and \omega_i in the formula above.
Part b (1 point)
For each of the data sets below, identify the error distribution that should be used to model the data. Briefly explain why that error distribution is appropriate.
- i. Severity
- ii. Policy Renewal Retention
Part c (0.5 points)
For each of the error distributions in part b. above, provide an example of how \omega_i should be assigned for the type of data being modeled.
Answer this question and see the worked solution