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

An insurer graduates its crude mortality rates by graphical methods. Which is the main drawback of this approach relative to parametric fitting?

Graphical graduation is subjective: the smooth curve is drawn by judgement, so results vary between analysts and cannot be reproduced or measured precisely. Parametric fitting, by contrast, uses a formula with estimated parameters and is objective and reproducible.

  1. AIt cannot show the crude rates visually
  2. BIt is subjective, and it is hard to quantify the smoothness achievedCorrect
  3. CIt always over-smooths the data at every age
  4. DIt requires the underlying lives to be independent
  5. It is only valid for a population with exactly one decrement

Explanation

Graphical graduation relies on drawing a smooth curve through plotted crude rates by judgement, so the result depends on the person drawing it and cannot be reproduced exactly. Parametric fitting is objective and reproducible.

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