Overview of parametric models

Overview of parametric models:

Introduction

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School of Risk and Actuarial Studies

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 Overview of parametric models
Introduction

Parametric models

assume that the distribution belongs to a certain family (e.g.

normal or exponential)
advantages
generally easy interpolation/extrapolation
generally easy to draw statistical inference
easy way of smoothing the data
disadvantages
parameter error
model error

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 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

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 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

Survival analysis with parametric distributions

Uniform distribution (de Moivre)

1, x ≤ 0

S(x; ω) = ω−xω , 0<x ≤ω

0, x > ω


1
µx =
ω−x
Exponential distribution (constant mortality rate/memoryless)

S(x; µ) = e −µx , t > 0

µx = µ
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 Overview of parametric models
Introduction

Survival analysis with parametric distributions

type I extreme least value

 
R ax
S(x; a, R) = exp − e , −∞ < x < ∞, a > 0, R > 0
a

µx = Re ax

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 Overview of parametric models
Introduction

Survival analysis with parametric distributions

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

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 Overview of parametric models
Introduction

Survival analysis with parametric distributions

Other examples include

modelling a life time distribution: Weibull, log-Normal,
Gamma, logistic
modelling stochastic transitions of states: Markov chain

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 Overview of parametric models
Introduction

Survival analysis with cohort effects

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

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 Overview of parametric models
Introduction

Survival analysis with explanatory factors

Linear log-time model

multiplicative effects on the survival time (via additive effects
on the logarithm of the survival time)
Accelerated failure time model
generalisation of the linear log-time model
covariates scales (in some functional way) the survival time
(given a baseline model)

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 Overview of parametric models
Introduction

Additional reference

Elandt-Johnson, R.C. and Johnson, N.L.. Survival models and data

analysis, Wiley & Sons, Inc., New York, 1999.
Chapter 3: Survival distributions.

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 Overview of parametric models

Overview of parametric models:

Representation in log time

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School of Risk and Actuarial Studies

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 Overview of parametric models
Linear log-time model

Linear model representation in log time

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

Estimation of linear log-time model

If ε is normal (so T is lognormal) we can use Ordinary Least

Squares (OLS)
ε is usually not normal because we have censored observations
Need to use MLE method

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 Overview of parametric models
Linear log-time model

Two factor case

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

E (log Ti |xi1 , xi2 ) = β0 + β1 xi1 + β2 xi2

Note that
Ti = e β0 +β1 xi1 +β2 xi2 +σεi
E (Ti |xi1 , xi2 ) = e β0 +β1 xi1 +β2 xi2 E (e σεi )

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 Overview of parametric models
Linear log-time model

Two factor case: Interpretation of βj

Consider

Ti = e β0 +β1 xi1 +β2 xi2 +σεi

= e β0 e β1 xi1 e β2 xi2 e σεi

Assume that xi1 increases by 1% so that

e β1 xi1 (1.01) = e β1 (0.01) e β1 xi1

therefore Ti increases by β1 % (continuous compounding)

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 Overview of parametric models
Linear log-time model

Relationship to a Cox regression model

A linear log time model is a parametric model

fully specification of the parametric distribution
A Cox regression model is a semi-parametric model
linear transformation of covariates
no specification of parametric assumption
no specification of the baseline
Generally speaking, we use these two models for different
purposes in survival analysis
linear log-time: modelling the life time (which is a r.v.)
Cox regression: modelling the hazard rate process (which is a
function of time)

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 Overview of parametric models

Overview of parametric models:

Accelerated failure time model

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School of Risk and Actuarial Studies

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 Overview of parametric models
Accelerated failure time model

Accelerated failure time (AFT) model

Here we use the idea of modifying a baseline model (with survival

function S0 ). This model is then scaled up or down based on the
covariates. The survival function is
 h i
S(t; x) = S0 t exp θx > ,

where θ = (θ1 , · · · , θp ) is a vector of regression coefficients.

Note:
a change in covariate values changes the time scale from the
baseline time scale t
exp θx > is called an acceleration factor
 

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 Overview of parametric models
Accelerated failure time model

Illustration

It is often said that dogs grow

older seven times faster than
humans.
So a 10-year-old dog is in some
way equivalent to a 70-year-old
human.
In this framework dogs can be
viewed, on average, as
accelerating through life 7 times
faster than humans.
In AFT terminology, the probability of a dog surviving past 10
years equals the probability of a human surviving past 70 years.
More generally we can say SD (t) = SH (7t).
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 Overview of parametric models
Accelerated failure time model

Linear log-time and AFT models

Consider the linear log-time model: log T = µ + βX > + σε.

Define T0 = exp(µ + σε) and let S0 (t) be the survival
function of T0
Then the survival function of T :

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

Linear log-time and AFT models (Cont’d)

The survival function of T

 h i
S (t; X ) = S0 t exp −βX >

Hence, the linear log-time model is equivalent to the AFT

model with θ = −β and S0 (t) = Pr(exp(µ + σε) > t).

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 Overview of parametric models

Overview of parametric models: Lifetime

distributions - Weibull

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School of Risk and Actuarial Studies

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 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

µ (t) = λαt (α−1) , t>0

increasing hazard rates if α > 1,

decreasing hazard rates if α < 1,
constant hazard rates if α = 1
has a survival function of
α
S (t) = e −λt
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 Overview of parametric models
Lifetime distributions - Weibull

K&M, page 23
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 Overview of parametric models
Lifetime distributions - Weibull

Weibull life time

Suppose the log-time model is

log T = µ + βX > + σε

where ε has the standard extreme value distribution

fε (w ) = exp(w − e w ), −∞ < w < ∞.

The life time, given covariates, follows a Weibull distribution

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

Weibull life time (Cont’d)

The equivalent AFT representation:

 h i
S(t; X ) = S0 t exp θX >

where
θ = −β/σ
and the baseline survival function satisfies

S0 (t) = exp (−λ0 t α ) ,

µ
λ0 = e − σ

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 Overview of parametric models
Lifetime distributions - Weibull

Proportionality

The Weibull life time model has proportional hazards:

The hazard rate of T with covariates X is

h(t; X ) = h0 (t) exp(−β/σX > ),

where h0 (t) is the hazard rate function corresponding to the

baseline survival function S0 (t).
The Weibull is the only continuous distribution that yields
both a proportional hazards and an accelerated failure-time
model.

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 Overview of parametric models

Overview of parametric models:

Lifetime distributions - log Normal

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School of Risk and Actuarial Studies

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 Overview of parametric models
Lifetime distributions - log Normal

The log normal regression model

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

See proof next.

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 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.
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 Overview of parametric models

Overview of parametric models:

Mortality models

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School of Risk and Actuarial Studies

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 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
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 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
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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

Probability of more than one transition in time dt is o (dt)

transitions occur according to a Poisson process (exponential
waiting time)

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 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

In presence of increments and multiple decrements

Markov multiple state model extends easily to multiple

decrements and increments (and more complicated models)
Poisson model extends easily to multiple decrements, but not
to processes with increments
Binomial model does not extend easily to multiple
decrements/increments

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 Overview of parametric models
Mortality models

Aggregate vs micro-level approach

Some considerations:
Granularity
availability
sufficiency
Complexity of dataset (e.g. knowledge of covariates)
Time horizon in prediction (extrapolation)

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