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Sample Paper CT6 Statistical Methods

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Please note: The material of the sample papers are the collection of the questions from the IAI/IOA exams based on our analysis. Actuarial Answers is not declaring/saying anywhere that this is the product created by Actuarial Answers. There is every possibility that students will find the questions of this sample paper in past year IAI/IOA exams

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Sample Paper CT6 Statistical Methods

Our Analysis
After analyzing the IAI CT6 examinations of last 7 years, we have identified some trends which could help candidates in preparing for this exam in a better manner. As the result of CT6 exam in the last attempt is 0.64%, we believe there is a need to identify the more important sections where paying more attention from students can help them in cracking the exam. Below graphs indicate the chapter wise-weightage for CT6 papers historically:
30.00% 27.50% 25.00% 22.50% 20.00% 17.50% 15.00% 12.50% 10.00% 7.50% 5.00% 2.50% 0.00% 1 2 3 4 5 6 7 Chapters 8 9 10 11 12 & 14 13

May2011 May2010 Nov2010 May2009 Nov2009 May2008 Nov2008 May2007

Exam weightage Exam weightage

16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 14 & 13

Last 5 years IAI exams Last 6 years IAI exams

Chapters

Keeping this in mind, we have developed this paper from the most appearing chapters: Chapter 1 (Decision Theory) Chapter 2(Bayesian statistics) Chapter 4 (Reinsurance) Chapter 10 (Run-off triangles) Chapter 11 (Generalized linear models), Chapter 12 and 13 (Times series), and Chapter 14 (Monte Carlo Simulation) These have contributed 77% of the exam for the last 7 years. This will help you do targeted revision for the upcoming examinations. Its recommended though that you do revise for other chapters also, but focusing on this paper will help get the maximum ROI on effort

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Sample Paper CT6 Statistical Methods

SAMPLE PAPER I
Max. Marks: 100 Time Allotted: 3 hours Note: Use of Scientific Calculators & Actuarial Tables is allowed

Q.1 A casino operator moving into a country for the first time must apply to the casino regulator for a license. There are three types of license to choose from slots, dice and cards each with different running costs. The casino operator has to pay a fixed amount annually (1,300,000) to the regulator, plus a variable annual license cost. The variable license cost and expected revenue per customer for each type of game are as follows:

The casino operator is uncertain about the number of customers and decides to prepare a profit forecast based on cautious, best estimate and optimistic numbers of customers. The figures are 14,000; 20,000 and 23,000 respectively. i. ii. iii. Determine the annual profits under each possible combination. [2] Determine the minimax solution for optimising the profits. [3] Determine the Bayes criterion solution based on the annual profit given the probability distribution P(cautious) = 0.2, P(best estimate) = 0.7 and P(optimistic) = 0.1. [3] [8]

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Sample Paper CT6 Statistical Methods

Q.2

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Sample Paper CT6 Statistical Methods

Q.3

where < 1 and the et form a white noise process [3]

Q.4 Write down the general statistical model for the run-off triangle claim data and explain the terms used. [5] Q.5

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Sample Paper CT6 Statistical Methods

[9] Q.6 It is presumed that during the initial years of a company, the events of posting net annual profit in successive years occur independently with probability p. A watchdog agency gives a profitability score (X) to start-up companies, and keeps a record of the number of years (Y) taken by the company to post net annual profit for the first time (Y=1,2,3,). An analyst wishes to fit a Generalized Linear Model to the paired data (X,Y) for several start-up companies. i. What is the distribution of Y? [1] ii. Calculate the mean of Y. [1] iii. Show that the distribution of Y belongs to an exponential family, and identify the natural parameter, the mean and the variance function. [4] iv. Using the canonical link function, state a model that relates X to the mean of Y. [3] v. The analyst intends to fit the above model to the data (X1,Y1),,(Xn,Yn), for n start-up companies. Write down the likelihood function explicitly in terms of the model parameters and the data [3] [12]

Q.7 Consider the following probability mass function of a discrete random variable X. Px(X = 2) = 0.15 Px(X = 3) = 0.20 Px(X = 5) = 0.25 Px(X = 7) = 0.20 Px(X = 11) = 0.20

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Sample Paper CT6 Statistical Methods

Using the following pseudo-random numbers from the Uniform (0,1) distribution, generate nine samples from Px: 0.011, 0.757, 0.438, 0.258, 0.981, 0.518, 0.400, 0.351, 0.672. [4] Q.8 i. ii. iii.

Define a Markov Process. [2] For what value of p an AR(p) process is a (one-step) Markov Process? [1] Rearrange terms of the AR(2) process Xt = 0.5 Xt-1 + Xt-2 + et such that the resultant vector AR process becomes a (one-step) Markov Process. (2) [5]

Q.9

Q.10

[8]

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Sample Paper CT6 Statistical Methods

Q.11

Q.12

Q.13 A sequence of pseudo-random numbers from a uniform distribution over the interval [0, 1] has been generated by a computer. i. Explain the advantage of using pseudo-random numbers rather than generating a new set of random numbers each time. [2] ii. Use examples to explain how a sequence of pseudo-random numbers can be used to simulate observations from: (a) a continuous distribution (b) a discrete distribution [4] [6] Q.14

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Sample Paper CT6 Statistical Methods

Q.15 Let X denote the claim amount under an insurance policy, and suppose that X has a probability density fX(x) for x > 0. The insurer has an individual excess of loss reinsurance arrangement with a retention of M. Let Y be the amount paid by the insurer net of reinsurance. Express Y in terms of X and hence derive an expression for the probability density function of Y in terms of fX(x). [2]

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Sample Paper CT6 Statistical Methods

Evaluation
We would be sending out the evaluation for this exam in a weeks time. In the meanwhile, we are open to providing one-to-one evaluation for your attempt at this sample paper. You may email us your solutions in a document or scanned copies at actuarialanswers@gmail.com. Team ActuarialAnswers

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