Sources of model or parameter error

Discussion in 'SP7' started by zuglubuglu, Jan 30, 2015.

  1. zuglubuglu

    zuglubuglu Member

    The model solutions to 16.1 list incorrect dependencies and statistical distributions as sources of parameter error.

    Yet these are listed under Model Uncertainty in chapter 4 (page 31).

    Can we please get a clarification about these two?

    If the actual model is all about fitting a curve, the statistical distribution selection per-se is the model/method and therefore this is a source of model error. This is even mentioned in 1.1 of chapter 16 therefore I trust it is best to consider incorrect choice of statistical distribution as a source of model rather than parameter error.

    On the other hand if we are using some form of Bayesian analysis, the selection of the priori's stat distribution can be considered as a parameter error?
     
    Last edited by a moderator: Jan 30, 2015
    zuglubuglu, Jan 30, 2015
    #1
  2. Darren Michaels

    Darren Michaels ActEd Tutor Staff Member

    Hi there

    Sometimes the precise split between model error and parameter error is a grey one. It isn't always clear where the model stops and the parameters begin, especially in more complex models.

    In the solution to Question 16.1 incorrect correlations and statistical distributions were listed under parameter error rather than model error because they were presumably referring to a small part of a much bigger model.

    Incorrect correlation assumptions would normally always fall under parameter error but I agree that in other situations you could regard the choice of incorrect statistical distributions as part of model error instead, particularly if the distributions were a big part of the model.

    By the way I don't have a page 31 in Chapter 4 (Reinsurance Products 1) - although I am not sure it matters to the answer to your query.
     
    Darren Michaels, Feb 10, 2015
    #2
  3. zuglubuglu

    zuglubuglu Member

    Thank you for your replies. I had an error in that I was relating to page 31 of chapter 9 (Risk and Uncertainty). However, as you correctly pointed out, this does not matter to my answer.
     
    zuglubuglu, Feb 11, 2015
    #3

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