Actuarial Outpost Continuity Correction
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 Short-Term Actuarial Math Old Exam C Forum

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#1
06-19-2018, 12:31 AM
 RockOn Member SOA Join Date: Dec 2013 Studying for Exam C Favorite beer: Polygamy Porter Posts: 83
Continuity Correction

Hello!
Can someone please advise me as to when we should be using continuity correction and when it's OK not to in an exam situation?

Thank you!
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#2
06-19-2018, 12:09 PM
 Master_of_my_domain Member SOA Join Date: May 2018 College: University of Colorado Posts: 134

Continuity correction is basically used any time you are approximating a discrete distribution by means of a continuous distribution.

So, for example, if the distribution of losses is Poisson(5) and you are trying to determine P(X>10) using the normal approximation, you would want to use the continuity correction when determining your z-score.

Just remember that depending on what you are calculating, you will have to either subtract 0.5 or add 0.5.

So, P(X>10) --> P(X>10.5) while P(X<10) --> P(X<9.5)

When the answer choices are largely dispersed, you don't have to worry about continuity correction because it will yield approximately the same answer as not using it.
#3
06-19-2018, 10:32 PM
 pershing Member SOA Join Date: Jul 2012 College: Starfleet Academy Posts: 50

And the Table says:

"When using the normal approximation to a discrete distribution, use the continuity correction."

(Page 2, the second paragraph from the bottom)

I guess we really don't have choice here.
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#4
06-20-2018, 12:53 AM
 RockOn Member SOA Join Date: Dec 2013 Studying for Exam C Favorite beer: Polygamy Porter Posts: 83

Mmmm. Interesting. I've not always used continuity correction and can often get the correct answers.

Thank you for the responses. These are helpful.
__________________
EXAMS: P | FM | MFE | MLC | STAM | PA |
VEE: ECON | STATS | CORP FINANCE |
FAP: MOD 1| MOD 2| MOD 3| MOD 4| MOD 5| IA| MOD 6| MOD 7| MOD 8| FA |

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