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# AMAT 171

CHAPTER 1
() = 1 () = ( > )
[ ] = [0 + |0 > ]
(+)0 ()
() = 0
0 ()

0 ( + )
() =
0 ()
0 ( + ) = ()0 ()
( + ) = ()+ ()
0 () = 1
lim () = 0

lim () = 0

= [ < + ]
= () ( + )
Identities:

1
= lim
[0 + |0 > ]
0+

+ = 1

| = +
= +

+ = +
1

=
( 0 )

1.
2.
3.
4.

5.

= +

() = +

6.

7.

{ 0 + }

CHAPTER 2
FORCE OF MORTALITY

+1

=
0

= 1, = 0
8.
1

() =

0 ()

0 + +1

( + )
0 ( + ) ( + ) 0
1
=
()
()

+ =
+

()
+ =
()

= ln 0 ()

Some Results:

0 () = { 0 }
() =

{ 0 + }

Central Moments
()
= [ ] = 0

= 0 +

[2 ] = 0 2 +

() = (1 +
)
+

Trapezoidal Rule

1
() (() + ())
2

= 2 0
Var[ ] = [2 ] ( )2

= 2 0 (0 )2

P[ = ] = [ + 1]
| = +

()
= [ ] = =1

= =0 P[ = ]
[2 ] = 2
=1

= =0 2 ( +1 )
Var[ ] = [2 ] ([ ])2
2
= 2
=1 ( )

+1
1
=
+
=0
2

= 1 ( )1

+ = 1 ( )

+ = ( )

1+

2.
3.
4.

Balducci
1

0 <
={
<

:
= [ ] = 0

0 (+)
0 ()
1
1

0 (+1)

+1

1(1)

Some Identities:

1.

1(1)

CHAPTER 3

2.

+ =

Life Tables

3.
4.

1+

+ =
+
=

+1 =

= ( + )1

( + +1 )

E[ ] = = +
Let = +1 =

0 () 0 ()

=
=
0 ()
0 ()

## Fractional Age Assumptions

UDD

UDD1: = s , 0 < 1
UDD2: = +
[ ] =

= (1 )

=
+

+ =

3.
4.

= +

+ =

1
0 +1 +
1
0 +

=
1

0 +1 +

5.

1+

Constant Force

= =

()
= ( ) =
Some Results:

1.

(1(1) )2

+ +1

+1

0 +

= 0 + + + +

= 0 +

0 + + +
=
n =

() = 0 + +

= 0 +
() = lim

() =

1
(1)

1(1)

5.

Some Results:

1.
2.

1(1)

0 + +
1

0 + +
1

0 +
1

= [ | < 1]

Some identities:
()
1. =

2.

: =

3.
4.
5.

() = ()
2
= () +[1 ()]+1
+
+1

= 1 ( )

[]+ =
a.

b.

[]+ =

2 ()

[] =

## Select life table

=

Term Insurance

Z={
0
>

[]+

[]+
[]+

: = [] = +
0

[]+

=0 +

: =E[ 2 ] = 0 2 +
[] = 2: (: )2
2

CHAPTER 4
Assumptions
1
1. =
1+
2. = (1 + )

() = ((1 + ) 1)

3.

()

( )2

## Whole Life Insurance (Continuous)

Z = = Tx

= [] = +
0

Discrete Case:
+1 1
={
0
+1 =
: = [] = 1
=0
|
+1
= 1
=0
+
2
2(+1) =
: = 1
=0
|
1

= 2(+1) +

=0 +

=0

[] = 2: (: )2

=E[ 2 ] = 0 2 +
Mth-ly
1
()+
[] = 2 ( )2

1
()

For constant force of mortality and force of Z={

()
interest ,
0

+1
= [] = 0 =
()
+
: = [] = 1
=0 | 1
Discrete Case:

2(+1)
2 ()
= +1
: = 1
1
=0
|
+1

= [] =
=0
|
() 2
2 ()
[] = : ( : )
= +1
2

=0
2(+1)

=
=0
|

2(+1)
= =0
+
[] = 2 ( )2
M-thly

1
=

1
()
P[ = ] = [ + ]
()

=
()

2 ()

=0

= + 1

1
|

+1
1
|

2(+1)

=
=0

ENDOWMENT INSURANCE
Pure Endowment
0
Z={
>
: = [] = =
Continuous

Z={
>

: = + +
0
2

Var[Z]= : (:

1 ={
0
>

)2

0
2 ={
>
3 = 1 + 2
[3 ] = : + :
[3 ] = [1 ] + [2 ] + 2[1 , 2 ]
2[1 , 2 ] = 2[1 ][2 ]
Recursions
1.
= + +1
()

2.

()
1
+

= 1 + 1

## Standard Ultimate Survival Model

Makehams Law:
= +
A=0.00022 B=2.7x10-6 C=1.124

## Annually decreasing n-year term insurance

Z= ( )

(D : ) = 0 ( ) +
Annually increasing whole life insurance
Z=( + 1) +1
+1
() =
=0( + 1)
|
Annually decreasing n-year insurance
( ) +1 = 0,1, , 1
Z={
0
= , + 1,
(
() : =1

) +1 |
=0
Some identities:
1. () : =1
=0 ( ) | :1

Deferred Insurance
>
Z={
0

= + = : +

|
Some identities:
1. | : = +:

2.

+ ()+1
,
:(+1)
3.

= :+
-:
1

3. : = =0 | :1

4. =
=0 | :1

4.

5. = : + |
6. : = +

5.

| :

2.

, ()
Relationship of

Under UDD

()
= ()

: : +

## Varying Benefit Insurance

Z= + 1

APV=(I)x=0 + 1 +

= 1

=0 :
() :
=
[v + +1
]
:(+1)
x=0,1,2,,y-1
() :
= (
)v + ()+1

:(+1)
() = [v + +1 ]+ ()+1

)
= (

() :0
=0

CHAPTER 5
CONTINUOUS LIFE ANNUITIES
=
() =
=

+1

( () )x=0
+

Z=
)x= + = |
(
0
0

,0<<

= [] = +

=0

+1

Z=

ln(1)
)

( )=

( )2

1
+

0 <
Y={

: = 0 + +

= 0
1:

: (: )2
() =
2
2

0
0 <
Y={

= +
= :

[] =
+
2
2
() = (
) +
2

( | )2 = 2 (+ 2+

Y={

>

+ +
: =0

= +

= [ + ] 1

+1
= 1 +
=0
+1

1.
2.
3.
4.

(
)=

+1

## Discrete Life Annuities

Whole life Annuity-Due

Y=
+1

= [
+1 ]

= =0
+1 +

=
=0
+1
If g(k)=

+1 , () =

() = +1
Summation by parts:
= ()() = [g(n + 1)f(n + 1)
g(m)f(m)] nk=m f(k + 1)g(k)

={

:| =
2

( )

:| =

() =

1 :| :

2
(1+)2 [ 2:| (:
| ) ]+
| :
2(1+):

+1 0
={

1
:
= =0

+1 + +
1
:
= =0

()

Some identities:
1. :
= 1 + +1:(+1)

2. :
=

1:

() =

0
0
={

|
+1|

= + = :

=
=

## n-year certain and life annuity-due

|
0

={

+1|

=
:|
|
+1| +

:| = | +

:| = | + :

Note: = [

]=

1(1+)

=
()
= ( )

=
=0 =

Var(Y)=

2 ()
2
(() )

=(1 + ) +1
() = [( )]
Equivalence Principle: [] = 0
L= PV Benefit PV Premiums Paid

( ) =

1 +( +1)/

2
() = [ ( ) ](1 + )2

## For constant force of mortality and constant

force of interest,
2

()

()

= ,

( () )2

3. () = 1()
|
4.

()

1| 1
()

()

Increasing Annuities
Annuity-due where payment increases with
time

( ) =
=0 ( + 1)
Annuity is payable for a maximum of n
payments

( ):| = 1
=0 ( + 1)

## Annuity is payable continuously, payments

increasing by 1 at the end of each year
():| = 1
:1|
=0 ( + 1)

=

= =1
+ = =1
1

= +1
+1

If =

Some identities:
()
()
1. 1 = () +
()
()
2. () = 1()
)
|
| (

2
:
(:
)

+ 1

=0

: |
=

CHAPTER 6

1 (1 + ) :| :

: = ( + ): (1 )
=
|

Some Identities:
= 1 + +1
1
=

1 = +
=

)
= (
:|

## Whole life continuous annuity where

payment is t at exact time t

) =
(
0

1. Whole life insurance

( ) =

## 2. n-year term insurance

|
( :| ) = :
|
:

3. n-year endowment

(:| ) = :|
|
:

## 4. h-payment whole life

( ) =
5. h-payment n-year term

( :| )

:|

:
|

:|

## 6. n-year pure endowment

( ) = :|
:|

() =

:
|
:| (:| )2

Some identities:

(n-year endowment)

(:| )

1. ( ) = 1

:|
1:|

2. (:| ) =

3. (: ) = : + :|

1
+
() = 1 ( ln [
])

<

()

1. Whole life:

()

:| =

2. n-year term:

( )2
() =
( )2

## 1. Whole life insurance: =

2. n-year term insurance

:
|

:| =

|
:

()

:| = :|

=
:|

## 5. h-payment n-year endowment

:|

:
|

:
|

:
|

1. ( ) = =

2. ( :| )

= ( ) {| ( < ) +
|
( )}
Mortality and Survival Functions

:
|
()

:|

:
|

() (:| ) =

()

:|

()

( ) =

()

:|

()
(:| ) =

()

:| =

() ()

(1 + ) = (1 +

:|

()
)

()
() ()

= (1

:
|
()

:|

(1 )

()

Loss Formula

|
1. Whole Life: =
2. N-year term:

< ) {| ( < )
+
| ( )}

De Moivre: ( )1
Gompertz: x
Makehams: +
Weibull:

Paretos
( + )1

De Moivre:
De Moivre:

1
1

() =

([] )
=
|

([] ) = [ | > ]
) = + ( )+

## For constant and ,

+ = 0
( ) = + ( )

+ =
+
( ) =
1
+ =
+
Benefit Reserve = (APV of whole life insurance
from age x+t)-(APV of future benefit premium
payable after x+t at an annual rate of ( ))
Trivial case: 0 ( ) = 0
Variance:

[ 2+ (+ )2]

= ( ) = 0
( ) 2
]

[ 2 ( )2]

() = Pr[ | > ]

(
)
+

(
))
+

1 ()

1
1 + ( )
( ln(
)

+ ( )
(1 ())( + ( ))

## Aggregate Mortality Assumption

1 + ( )
() = 1 + ( ln(
)
)
(

1
1 + ( )
( ln(
)

( + ( )) +
+ ( )
Prospective Method:
1. Whole Life Insurance
() =

( )

2.

3.

= + ( )+

## n-year Term Insurance

( :|
+

)
, <
:|
:|
)={+
( :|
0, >
n-year endowment insurance

)
(:|
4.

5.

AMAT 172

] [ | > ]

1 ( ln(

6.

7.

={

+:
( :| )+:

|
| , <

1, >
h-payment years, whole life insurance
( )

( )

( ) 2

( ) 2
]

Var[ | > ] = [1 +

:
|

= : (Term)

## 6. n-year pure endowment

3. n-year endowment

:|

## Write expression for L

( ) = ,
Set = in L, set L=0 and
solve for P

UDD Assumptions

()

:|

() ( :| ) =

= [1 +
Independent age:

= ( < ) + ( )
{| ( < ) +
| ( )}

:|

1.
2.
3.

## 2. n-year term insurance

Var[ | > ] = [1 +

()

:
|

:| =

= {| ( < ) +
| ( )}

## 4. h-payment years, whole life

()
= ()

:|
5. h-payment years, n-year term
:|
()
:| =
()
:|

|
:

## 4. h-payment whole life

)
{| ( < )
+ |
( )}

3. n-year endowment

< )

+ (

()

= +1
+1

## Benefit is paid at the end of year of death

3. n-year endowment: :| =

Discrete Case

3. :| + :| = 1

3. N-year endowment:

= + ( )+:
| ,

## h-payment years, n-year endowment insurance

(:|
+:|
+:|

)
, <

) = {
,
<<
(:|

+:|
1,
=
n-year pure endowment

( ) +:|
, <

) = {+:|
:|
(:|
1, =
whole life annuity

,
) = { |+ ( | )+:|
( |
+ ,
>

) = [ (+:|
(:|
+:|
)
)]

(:|
2.

## Paid-up Insurance formula:

(:|
)
) = [1
]+:|

(:|
(+:|
)

3.

Set s=0

Retrospective Formula:
) = +
(:|
+ + +
)
:|
(:|
(:|
+:|
)

)
0 (:|

=0

, where
= (:|
) :|

:|

= +
:|
,
=

)
(:|

= (:|
)

:|

Identities:
1

= ( ) +

) = (:|

):|

(:|
+

(
)

=
1

( )

( )

## n-year term insurance

+
:
, <
:|
| +:|
= {
:|
0,
=
3.
n-year endowment insurance
+:|
:|
+:|
, <
= {
:|
1, =
4.
h-payment years, whole life insurance
+ +:|
, <

= {
+ ,

5.
h-payment years, n-year endowment
+:|
:|
+:|
, < <

= {
+:|
<
,
:|
1, =
6.
whole life annuity

) ( | ) +:|
, <
) = { | +
( |
+ ,

= (+:|
):|
+:|

:|

Paid-up insurance
:|

) +:|
= (1

:|
+:|

Retrospective formula
= +
:|
+:|
+ + +:|

:|
:|

Where

(:|
:|
:|
) = :|
:|

:|

+
+ +
+

= 1
1

= +

=0

=0

= + + ++ + + +
0

## -present value of financial loss on

(h,h+1) at h

= 0, 1

= +1 , =

= , + 1
In general,
0,
1
=
= { +1 ,
,
+ 1
0,
1
=
= { +1 ,
,
+ 1

E[ | ] = +1+

Var[ | ] = (+1)2+ +

E[ ] = (+1+ )
Var[ ] =
(+1+ +1)2 + + (+1)2 + +

= +1
=0

= ++1 +1 |+ + +

=
= { (+1 ) ,
+ ( +1 ), + 1
[ | ] = +1+ + +1 + +
=0
Var[ | ] = [2 | ]
= [(+1 +1 )]2 + +
[ | ] = 0,
Var [ | ]=Var [ | ] +

Lemma:
Cov[ , | ] = 0, gh<j

2.

=0

## Analysis of Benefit Reserve

(General Fully Discrete)

Time h:
= [ | ]

= + +

:|

= 1

## Fully Discrete Benefit Reserves

= ( )+1) (
( )1| )

Setting j=0,

:|

(:|
)+
:|

= :|
+ :|

0,

= 1
:|

= +
:|

( )
(:|
)

= [ | ]
= + - +

Var [ | ] = (1 + )2 [ 2+ (+ )2 ]

(, + 1)

=0

= + 0
0
<

= {

+
=0
0
<
= {+1

+
+
=0
=+

Hatterndorf Theorem
Var[ | ] =
2()
a.
[ | ]
=
2()
2
b.
=
+ {[(+1 +1 ] + + }
2()
2
c. +1

{[(

+1
=
+
+1 ] + + } +
2 + [+ | + ]
Multiple Life Functions

( +1 )
, <
=0

Recursion of loss
= +v +1
Recursion of reserve
= +1+ + + +1
Allocation of the Risk
= + ( )
< , = + +1
= , = +1
h> , = 0