Exam MAS-I Practice Question 161
Study guide: Exam MAS-I
An actuary models average claim severity as a degree-4 polynomial in vehicle age, for vehicles aged 0 to 20 years, and is considering raising the degree to 12. Which of the following statements is correct?
- A) The fitted curve is non-linear in age, so its coefficients must be found by iterative non-linear least squares rather than ordinary least squares
- B) Each power of age adjusts the curve locally, so unusual severities among the oldest vehicles leave the fit for new vehicles unchanged
- C) The coefficient on age cubed is the change in expected severity for a one-year increase in age, holding age and age squared fixed
- D) The pointwise standard error of the fitted curve is the same at every age, because all ages share one coefficient covariance matrix
- E) Raising the degree to 12 cannot increase the training RSS, but the curve is likely to swing erratically near ages 0 and 20
Answer this question and see the worked solution