SOA Exam SRM Sample Question 42

Study guide: Exam SRM

Determine which of the following statements is NOT true about the linear probability, logistic, and probit regression models for binary dependent variables.

• A) The three major drawbacks of the linear probability model are poor fitted values, heteroscedasticity, and meaningless residual analysis.
• B) The logistic and probit regression models aim to circumvent the drawbacks of linear probability models.
• C) The logit function is given by \pi(z) = e^z / (1 + e^z).
• D) The probit function is given by \pi(z) = \Phi(z) where \Phi is the standard normal distribution function.
• E) The logit and probit functions are substantially different.

Answer this question and see the worked solution

Concepts tested

• Logistic Regression
• Generalized Linear Model
• Link Function
• Heteroscedasticity

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