CAS Exam 8 Fall 2015, Question 2
Study guide: Exam 8
An actuary is modeling claim frequency for a portfolio with the following distribution of exposures.
| Territory | Vehicle Class: Car | Van | Truck | Other |
|---|---|---|---|---|
| A | 10,000 | 2,000 | 0 | 0 |
| B | 2,000 | 5,000 | 0 | 0 |
| C | 0 | 0 | 5,000 | 0 |
| D | 30 | 0 | 0 | 3,000 |
The actuary proposes a generalized linear model (GLM) with the following parameterization.
| Territory Factor Level | Parameter |
|---|---|
| A | \beta_1 |
| B | \beta_2 |
| C | \beta_3 |
| D | \beta_4 |
| Vehicle Class Factor Level | Parameter |
|---|---|
| Car | \beta_5 |
| Van | \beta_6 |
| Truck | \beta_7 |
| Other | \beta_8 |
Part a (1 point)
Briefly discuss how intrinsic and extrinsic aliasing are present in this analysis using examples from the data. For each type of aliasing briefly explain the potential impact on the results.
Part b (0.5 points)
Provide one example of near aliasing in this analysis and briefly describe any potential impact on the modeling results.
Part c (1.25 points)
Propose an alternative GLM approach to avoid extrinsic, intrinsic, and near aliasing. Describe how many covariates would be required.
Answer this question and see the worked solution