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c University of New South Wales
School of Risk and Actuarial Studies
1/11
Overview of parametric models
Introduction
Parametric models
2/11
Overview of parametric models
Introduction
Non-parametric models
Non-parametric model
no prior assumptions about the shape or form of the
distribution are made
advantage
adherence to data
disadvantages
may be hard to make inference
need extra assumptions to interpolate/extrapolate the data
3/11
Overview of parametric models
Introduction
Some examples
Non-parametric
estimating a probability density/mass function with a
histogram
modelling a survival function by using the Kaplan-Meier
method
Semi-parametric
modelling the mortality rate with a Cox regression model
Parametric
fitting data with a parametric distribution (e.g. Gamma,
Weibull, copula, etc.)
parametric regression models
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Overview of parametric models
Introduction
1
µx =
ω−x
Exponential distribution (constant mortality rate/memoryless)
µx = µ
5/11
Overview of parametric models
Introduction
R ax
S(x; a, R) = exp − e , −∞ < x < ∞, a > 0, R > 0
a
µx = Re ax
6/11
Overview of parametric models
Introduction
Gompertz distribution
a truncated (from 0) modification of the type I extreme least
value distribution
R ax
S(x; a, R) = exp (1 − e ) , x > 0
a
µx = Re ax
Makeham-Gompertz distribution
allowing for accidental deaths in addition to deaths from
natural causes
µx = A + Re ax
7/11
Overview of parametric models
Introduction
8/11
Overview of parametric models
Introduction
Lee-Carter model
µx (t) = αx + βx κt + x,t
where
αx represents the age-pattern
βx represents the deviations from the averaged pattern
κt represents the change in level of mortality over time
x,t represents the error term of age-specific fluctuation
9/11
Overview of parametric models
Introduction
10/11
Overview of parametric models
Introduction
Additional reference
11/11
Overview of parametric models
c University of New South Wales
School of Risk and Actuarial Studies
1/6
Overview of parametric models
Linear log-time model
Notation:
T denote the time to the event of interest (e.g. lifetime)
Z = (z1 , · · · , zp ) is a vector of explanatory covariates
We assume a linear relationship between log(T ) and covariates Z ,
such that
log T = µ + βZ T + σW ε,
where β = (β1 , · · · , βp ) represent the regression coefficients, and ε
is the error distribution (that is where the difference is between
models).
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Overview of parametric models
Linear log-time model
3/6
Overview of parametric models
Linear log-time model
Notation:
Let Ti be random life time of the i th subject
Two covariates for each subject xi1 , xi2
The model is log Ti = β0 + β1 xi1 + β2 xi2 + σεi
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Overview of parametric models
Linear log-time model
Consider
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Overview of parametric models
Linear log-time model
6/6
Overview of parametric models
c University of New South Wales
School of Risk and Actuarial Studies
1/5
Overview of parametric models
Accelerated failure time model
2/5
Overview of parametric models
Accelerated failure time model
Illustration
S (t; X ) = Pr (T > t)
h i
= Pr exp µ + βX > + σε > t
h i
= Pr exp [µ + σε] > t exp −βX >
h i
= Pr T0 > t exp −βX >
h i
= S0 t exp −βX >
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Overview of parametric models
Accelerated failure time model
5/5
Overview of parametric models
c University of New South Wales
School of Risk and Actuarial Studies
1/7
Overview of parametric models
Lifetime distributions - Weibull
Weibull Distribution
The Weibull distribution with
scale parameter λ, λ > 0,
shape parameter α, α > 0
has a hazard rate of
K&M, page 23
3/7
Overview of parametric models
Lifetime distributions - Weibull
log T = µ + βX > + σε
T | X ∼ Weibull(λ, α),
µ+βX >
where λ = e − σ , α= 1
σ
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Overview of parametric models
Lifetime distributions - Weibull
Proof
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Overview of parametric models
Lifetime distributions - Weibull
where
θ = −β/σ
and the baseline survival function satisfies
6/7
Overview of parametric models
Lifetime distributions - Weibull
Proportionality
7/7
Overview of parametric models
c University of New South Wales
School of Risk and Actuarial Studies
1/3
Overview of parametric models
Lifetime distributions - log Normal
Let
Y = log X = µ + βz T + σW .
Now assume that W has a standard normal distribution.
Note:
Y is now lognormal
The survival function of X defined above has the accelerated
failure-time representation:
h i
S(x; z) = S0 x exp θz T
2/3
Overview of parametric models
Lifetime distributions - log Normal
h i
S (x; Z ) = Pr (X > x) = Pr exp µ + βZ T + σW > x
log x − µ − βZ T log x − µ − βZ T
= Pr W ≥ =1−Φ
σ σ
!
−µ ( (−β)Z T )
log x + log(e ) + log e
= 1−Φ
σ
T
!
log(e −µ ) + log xe ((−β)Z )
= 1−Φ
σ
T
T
= S0 xe ((−β)Z ) = S0 xe (θZ )
−µ
where S0 (·) = 1 − Φ log(e σ)+log(·) , θ = −β, and Φ(·) is the
standard normal distribution function.
3/3
Overview of parametric models
c University of New South Wales
School of Risk and Actuarial Studies
1/7
Overview of parametric models
Mortality models
Binomial model
Assumptions
We observe Nx independent lives exactly aged x at the
beginning of the year, for one whole year
We observe the number of lives who die dx
Each life has probability of death of qx over that year (initial
rate of mortality)
Then the random variable Dx , number of deaths, is
Dx ∼ Binomial (Nx , qx )
that is,
Nx d x
Pr [Dx = dx ] = q (1 − qx )Nx −dx dx = 0, . . . Nx .
dx x
2/7
Overview of parametric models
Mortality models
Poisson model
Assumptions
We observe Nx individuals over a year of age x
We assume a constant force of mortality µx over the observed
period for each individual in age interval (x, x + 1)
On average, we expect µNx deaths over x to x + 1 and we assume
the distribution of deaths follows a Poisson random variable
e −µx Nx (µx Nx )dx
Pr [Dx = dx ] = , dx = 0, 1, 2, . . .
dx !
with E [Dx ] = Var (Dx ) = µx Nx .
This implies
the time to death of each individual is exponential
individuals are replaced upon death (possibility of multiple
3/7
deaths for an individual)
Overview of parametric models
Mortality models
Markov model
Assumptions
Markov assumption: the probabilities that the process at any
given time will be found in each state at any future time
depend only on the times involved and on the state currently
occupied
For any 2 distinct states, i.e. any g 6= h
gh
dt px+t = µgh
x+t dt + o (dt) t≥0
4/7
Overview of parametric models
Mortality models
Comparison
Binomial model
an aggregate count model (only applicable to death counts)
for a fixed time horizon
does not allow for time of death
Poisson model:
an aggregate count model (only applicable to death counts)
for a fixed time horizon
approximation of the Markov model (with replacement upon
death)
implies that there can be several deaths for an individual
Markov model:
allowing for time of death (preferred, if complete life histories
are available)
can be used as a micro-level model
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Overview of parametric models
Mortality models
6/7
Overview of parametric models
Mortality models
Some considerations:
Granularity
availability
sufficiency
Complexity of dataset (e.g. knowledge of covariates)
Time horizon in prediction (extrapolation)
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