THE UNIVERSITY OF NEW SOUTH WALES

MONTH OF EXAMINATION - JUNE 2003

ACTL5104
Actuarial Statistics
Final Exam

1. TIME ALLOWED - 3 HOURS.

2. TOTAL NUMBER OF QUESTIONS - 9.
3. ANSWER ALL QUESTIONS. START EACH QUESTION ON A NEW PAGE.
4. ALL QUESTIONS ARE NOT OF EQUAL VALUE.
5. THIS PAPER MAY BE RETAINED BY THE CANDIDATE.
6. CANDIDATES MAY BRING THEIR OWN CALCULATOR.
7. THE FOLLOWING MATERIALS WILL BE PROVIDED BY THE EXAMINATIONS SECTION:
STATISTICAL TABLES.

8. FORMULAE SHEETS ARE ATTACHED.

ALL ANSWERS MUST BE WRITTEN IN INK. EXCEPT WHERE THEY ARE EXPRESSLY RE-
QUIRED, PENCILS MAY BE USED ONLY FOR DRAWING, SKETCHING OR GRAPHICAL WORK.

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 Question 1 [6 marks]

(i) Show that the doubly-truncated hazard rate function, λ (x | y < X < z) is given by

λ (x) S(x)
S(x) − S(z)
R∞
where S(t) = t
f (u)du. [4 marks]
(ii) Obtain the hazard rate for a doubly-truncated exponential distribution. [2 marks]

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 Questions 2 [10 marks]

The data below are times to remission of leukemia patients of two groups each of n = 21 patients.

Controls: 1 1 2 2 3 4 4 5 5 8 8 8 8 11 11 12 12 15 17 22 23
Treatment: 6 6 6 6∗ 7 9∗ 10 10∗ 11∗ 13 16 17∗ 19∗ 20∗ 22 23 25∗ 32∗ 32∗ 34∗ 35∗

∗ indicates censoring.

In the control group who were treated with a placebo there was no censoring, whereas in the active
treatment group, who were given 6 mercaptopurine, more than half of observations were censored.

Analysis of the data of the treatment group provided the following SAS output:

Time No. nj alive just No. dj deaths ∧

S(t)
tj before time tj at time tj
0 - ¡6 21 0
6 - ¡7 3
7 - ¡10 17 1
15
13 - ¡16 1
16 - ¡22 11 1
22 - ¡23 7
≥ 23 6 1

∧
(i) Complete the Table above and calculate the Kaplan Meier estimate of the survival function, S(t). [6
marks]
· ¸
∧
(ii) Calculate V ar F (9) using Greenwood’s formula. [2 marks]

(iii) Estimate the probability that a leukemia patient in the treatment group will survive longer than time
9 and give confidence interval for this estimate. [2 marks]

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 Question 3 [5 marks]

(i) We would like to compare survival functions between two groups using the ‘Log-rank test’ and the
‘Wilcoxon test’. Explain briefly the difference in statistics used in the two tests. [2 marks]
(ii) Is there a significant difference in the survival functions between the two groups using the ‘Log-rank
test’ and ‘Wilcoxon test’ based on the following SAS output. [2 marks]
Test Chi-Square
Log-Rank 16.7929
Wilcoxon 13.4579

(iii) What would you do to confirm the results of the Log-rank test, giving reasons? [1 mark]

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 Question 4 [12 marks]

The following two proportional hazard models were fitted to survival data,

Model 1: λ (t; x) = λ exp (β1 x)

Model 2: λ (t; x) = λαtα−1 exp (β1 x)

where x = 0 for Group A, x = 1 for Group B, λ is the scale parameter and α is the shape parameter.

(i) Specify the baseline cumulative hazard function and the baseline probability density function for both
models. [2 marks]
(ii) Assuming that λ = 1, the results of fitting these models are shown below:

From Model 1,
Parameter Estimate Chi-Square
β1 −1.5266 14.68

and from Model 2,

Parameter Estimate Chi-Square
β1 −1.7308 16.64

(a) Is the hazard rate for Group B significantly different to that for Group A? Give reasons for your
answer. [2 marks]

(b) For both models, calculate the hazard ratio, i.e.

λ (t; x)
λ (t; 0)

and interpret them in terms of survival time of the two groups. [1 mark]
(c) Using the baseline survival function in Model 2, the survival time can be written as a log-linear
model, i.e.
ln T = b0 + b1 x + σε.
1. Derive the relationship between the coefficients in a log linear model for survival time and
the coefficients in a proportional hazards model. [5 marks]

2. Given that α = 1.3658, determine b1 and explain the difference in survival time between the
two groups. [2 marks]

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 Question 5 [18 marks]

Consider the following multiple state model describing the spread of AIDS. If a life is alive and not
infected by the HIV positive virus, it is in state 1. If it is alive and infected by the HIV positive virus but
it has not yet developed symptoms of AIDS, it is in state 2. If the life is alive and suffering from AIDS, it
is in state 3. State 4 denotes death. All possible transitions are indicated in the diagram below.

1 −→ 2 −→ 3
& ↓ .
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The transition forces for the age range 25 to 30 are assumed to be constant. µ1 , µ2 and µ3 are the rates
of mortality from each of the states 1, 2 and 3 respectively. The force of transition from 1 to 2 is λ and the
force of transition from 2 to 3 is ν.

(i) A high risk group of lives aged 25 to 30 has been observed for a year. The following information was
obtained. The total waiting time in states 1, 2 and 3 were 10000, 2000 and 1000 years respectively. The
numbers of deaths from states 1, 2 and 3 were 80, 20 and 200 respectively. There were 500 transitions
from state 1 to state 2 and 250 transitions from state 2 to state 3. Write down the likelihood and
derive the maximum likelihood estimates for each of the five parameters and their standard errors. [9
marks]
(ii) Is there a statistically significant difference between the mortality rates for states 1 and 2? Give
reasons for test statistics that you use and explain your answer. [4 marks]
(iii) Assuming that µ1 = µ2 = µ, modify the estimates calculated in (i). (There is no need to calculate
standard errors.) [2 marks]
(iv) Explain why the model might not be adequate. [3 marks]

(You may assume asymptotic normality for your estimates where appropriate.)

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 Question 6 [12 marks]

In a mortality investigation over 2002, deaths are tabulated in the following alternative ways.

Symbol Definition
1 Number of deaths aged x nearest birthday
θx
at death

2 Number of deaths aged x nearest birthday

θx
at the 1st of January preceding death

3 Number of deaths aged x nearest birthday

θx
at the policy anniversary preceding death

The number of lives in force are tabulated as

Number of lives in the investigation at 1 January 2002 + k

PxA (k) :
(k = 0, 1) aged x nearest birthday

Number of lives in the investigation at 1 January 2002 + k

PxB (k) : (k = 0, 1) aged x nearest birthday at the policy anniversary
prior to 1 January 2002 + k

Number of lives in the investigation at 1 January 2002 + k

PxC (k) :
(k = 0, 1) aged x nearest birthday prior to 1 January 2002 + k

(i) Derive the formulae for the central exposed to risk corresponding to each of the three deaths definitions.
Use the most suitable lives in force definition and state any assumptions you make. [6 marks]
(ii) Give formulae for crude estimates for the central rates of mortality corresponding to the groupings of
deaths in (i). What are the ages to which these rates apply? State all assumptions made. [6 marks]

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 Question 7 [15 marks]

(i) What unsatisfactory features of a graduation, that a χ2 test might not be sensitive to, are the standard
deviations test, the cumulative deviations test, the signs test and the grouping of signs test designed
to identify? [5 marks]
(ii) Apply the above four tests to the following graduation:

Age Observed deaths Expected deaths

35 241 270
36 204 202
37 212 245
38 231 217
39 242 225
40 220 230
41 213 200
42 218 195
43 185 187
44 193 166
Comment on your results. What is the least satisfactory feature of the graduation? How can the
graduation be improved? [10 marks]

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 Question 8 [12 marks]

A life office is investigating whether it is advisable to offer different premium rates to policy holders that
totally abstain from alcohol. The following data were collected over a one year period.

Non-abstainers Abstainers
Number of Number of
Age Initial exposed to risk Initial exposed to risk
deaths deaths
20-31 2 2200 0 200
32-43 2 1500 1 600
44-55 7 1500 2 800
56+ 6 600 9 800

The original premium rates were based on the following mortality rates

Age qx
20-31 0.00055
32-43 0.00085
44-55 0.00420
56+ 0.01055

(i) Which group has the highest crude death rate (CDR)? [2 marks]

(ii) Calculate the standardised mortality ratio (SMR) for each group using the premium basis as standard.
Which group has the highest SMR? [4 marks]
(iii) Which group exhibits the higher level of mortality? Explain the difference between your answers in
(i) and (ii) [2 marks]
(iv) Is there any statistical evidence to suggest changing the premium basis in any way? [4 marks]

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 Question 9 [10 marks]

(i) Explain how population projections are performed using a simple mathematical formula. Explain how
the logistic curve is used in such a projection. [6 marks]
(ii) What the advantages and disadvantages of using a mathematical formula to perform population pro-
jections versus using the component method? [4 marks]

End of paper

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