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#1




Dumb Question on Binary/Linear Predictor/Target Mean/I don’t even know
https://imgur.com/U4GbuWQ
So I’m reading through this page of the ACTEX manual and I don’t understand the majority of what this page is saying. Is there anyone who can explain this to me like I’m stupid? My big hang up is the “target mean” formula. What is this? What do you mean “target mean”? I know that Bernoulli is used when the value is binary and the mean is between 0 and 1. I’m shaky on link functions. So they are a way to link the target variable to the linear model. I kind of get that. We use the linear model (coefficients and variables) to get to a value such as ln(mu). We can then make something like a poison using mu, right? And then we can use that as a model? I guess I’m shaky on the purpose and implementation and reading through the section again isn’t helping. So back to the page in question. We have the logit formula. That makes sense. But why does pi equal that formula? That’s not the formula for the mean of a Bernoulli. I have no idea how we’re getting to that formula and I don’t know the steps we’re taking to get there. Any help is appreciated!
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Former Disney World Cast Member, currently no idea what I'm doing "I think you should refrain from quoting yourself. It sounds pompous."  SweepingRocks 
#2




This isn't a dumb question at all! In fact, asking this question shows that you understand the concept well enough to put the concepts into words. Past experience with our online form has shown that candidates who practice explaining concepts to others do better on Exam PA than those who don't.
These are very common questions on Exam PA and GLMs in general. I will shed some light on a few points below: Quote:
This is the mean of the target distribution. It's easier to think of in the continuous case than in the binary case. Imagine that the target is continuous and you fit a model using a Gaussian response. This will have parameters mu and sigma. The mean of the target then is mu. Two resources which provide an alterate explanation are the ExamPA.net study guide as well as this lecture from MIT OpenCourseWare. Quote:
Link functions "link" the random component and the covariates. They do not link to the target variable directly, as is often misunderstood. The classic example is with the log link: the log link is not the same as applying a log transform to the response variable, as everyone learned in their Stats course on Regression. See the two resources above for details. 
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Ambrose Lo, PhD, FSA, CERA Associate Professor of Actuarial Science (with tenure) Department of Statistics and Actuarial Science The University of Iowa ACTEX Manual for SOA Exam PA  ACTEX Manual for SOA Exam SRM  ACTEX Manual for CAS Exam MASI Textbook: Derivative Pricing: A ProblemBased Primer (useful for derivatives portion of Exam IFM) 
#4




Thank you both for replying! I took a bit to focus on the other sections in the manual before returning here and getting a better grasp on GLMs.
I definitely need to work on being clearer in my questions! Unfortunately, I feel when I created this thread, I didn't have a great grasp on the questions to ask! I didn't take SRM and the VEE was a long time ago. I apologize for any lapse in knowledge that should be present given the prerequisites for this exam. I guess the main thing I'm stuck on is what is the point of the link function and does it serve any purpose other than to dictate the target mean? We use logit with bernoulli distributions where the target mean is between 1 and 0. We might use log if we know the target mean should be positive. Is that the sole purpose of the link function? Or are there other things we must consider when choosing a link function? I believe I have an "okay" understanding of GLM looking back at the material and here's what I believe is true about GLM: •GLMs are flexible and allow us to model our target variable using exponential family distributions. We want to use them if our target variable's behavior follows a binary (binomial/bernouli), strictly positive (Gamma/Inverse Gaussian), or discrete nonnegative (poisson) pattern. •We use link functions as a way to connect our predictive variable to the target variable and "set" the mean (ie if the target should have a positive mean, use a log target). •The change in predictive variables has a different impact on target variables than regular linear models, and this interpretation depends on the link function (i.e. If log link is used, an increase of 1 in X1 results in an increase of e^B1 to the target). Is there anything I've missed here in terms of base level understanding? Or is there anything I'm not understanding correctly? Also thank you Dr Lo for creating this study manual. It is extremely helpful and I'd be DOA/FUBAR without it.
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Former Disney World Cast Member, currently no idea what I'm doing "I think you should refrain from quoting yourself. It sounds pompous."  SweepingRocks Last edited by SweepingRocks; 05042020 at 12:43 AM.. Reason: Clarification 
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I am glad you have found the manual useful!
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Ambrose Lo, PhD, FSA, CERA Associate Professor of Actuarial Science (with tenure) Department of Statistics and Actuarial Science The University of Iowa ACTEX Manual for SOA Exam PA  ACTEX Manual for SOA Exam SRM  ACTEX Manual for CAS Exam MASI Textbook: Derivative Pricing: A ProblemBased Primer (useful for derivatives portion of Exam IFM) 
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