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IAI Actuarial Core Principles · Risk Modelling and Survival Analysis · Graduation and graduation tests

A life office graduates crude mortality rates by fitting a smooth parametric formula. Compared with graduating by reference to a standard table, which statement is correct?

Graduation by reference to a standard table is useful with sparse data because the standard table provides the age pattern of mortality, and only a simple adjustment is estimated. Graduated rates from either approach still need testing for fit and smoothness.

  1. AParametric graduation cannot be tested for goodness of fit
  2. BGraduation by reference to a standard table is only possible when there is no data at all
  3. CGraduation by reference to a standard table is useful when data are sparse, since the standard table supplies the shape of the mortality curveCorrect
  4. DParametric graduation always gives higher adherence than any other method
  5. Graduation by reference to a standard table guarantees there is no need for any statistical tests

Explanation

When data are limited, borrowing the shape from a standard table with a simple adjustment is more reliable than fitting a formula to noisy rates. Both approaches still need tests of adherence and smoothness.

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