CAS Exam MAS-II Fall 2019, Question 2
Study guide: Exam MAS-II
In the supplemental material, you have been given a case study, "Warranty Payments Case Study". You have also been asked to evaluate three statements regarding the residuals results of the study.
The relevant output from the case study is reproduced below. The log of individual warranty payments for one product is modelled with linear mixed-effects models in R's nlme package; each plot shows a model's normalized residuals, against its predicted log payment and by payment lag (months since sale, 1 to 12).
Model II — payment lag and month sold as fixed effects, store as a random effect, variance assumed to be constant:
Model III — the same fixed and random effects, with variance a function of payment lag using the exponential variance function, varExp(form = ~Pay_Lag/2):
Model IV — the same fixed and random effects, with variance a function of payment lag using the power variance function, varPower(form =~Pay_Lag):
- I. Model II does not show any indication of heteroscedasticity.
- II. Model III does show indications of heteroscedasticity.
- III. Model IV does show indications of heteroscedasticity.
Determine which of the above statements are true.
- A) I only
- B) II only
- C) III only
- D) I, II and III
- E) The answer is not given by (A), (B), (C), or (D)
Answer this question and see the worked solution