CAS Exam 8 Fall 2019, Question 5
Study guide: Exam 8
The following confusion matrix shows the result from a claim fraud model with a discrimination threshold of 25%:
| Actual | Predicted Yes | Predicted No |
|---|---|---|
| Yes | 72 | 162 |
| No | 63 | 1203 |
Part a (0.5 points)
Identify a link function that can be used for a generalized linear model that has a binary target variable and briefly explain why this link function is appropriate.
Part b (0.5 points)
Calculate the sensitivity and specificity from the above data.
Part c (1.5 points)
Plot the receiver operating characteristic (ROC) curve with the discrimination threshold of 25%. Label each axis, the coordinates, and the discrimination thresholds of 100%, 25%, and 0% on the curve.
In addition, plot the ROC curve for each of the following two models:
i. A model with no predictive power
ii. A hypothetical "perfect" model
Part d (0.25 points)
Briefly describe how the severity of claims will impact the selection of the model threshold.
Answer this question and see the worked solution