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

Which of the following is the main reason an actuary might choose graduation by a parametric formula rather than graduation by reference to a standard table for a very large, well-populated investigation covering a wide age range of a distinctive population?

Ample data lets the formula's parameters be estimated reliably, and a distinctive population may have no suitable standard table to borrow from. The other claims are false: smoothness is not guaranteed, tests are still required, and fitting still uses an estimation method.

  1. AParametric formulae always produce smoother rates than any standard table
  2. BA standard table cannot be used for any data set above 100,000 lives
  3. CAmple data allows parameters to be estimated reliably, and a distinctive population may have no suitable standard tableCorrect
  4. DParametric formulae avoid the need to test the graduation afterwards
  5. Parametric graduation does not require the use of maximum likelihood or least squares

Explanation

With plenty of data the formula's parameters can be estimated with precision, and a distinctive population may differ from any available table. Smoothness is not guaranteed, no data-size limit bars standard tables, tests are always needed, and parametric fitting does use estimation methods.

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