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# Chapter 3: Survival Distributions and Life Tables

Distribution function of X:
Fx(:r)

= Pr(X

S;

:1;)

/1(:1:)

## Survival function B(.1:):

8' (x)

sex)
Relations between survival functions and
force of mortality:

age y:

Pr(.r < X S; z)

F.J( (z)

- Fx (:1:)

exp (

- B(Z)

## Probability of death between age

age y given survival to age :r::

-I

"(Y)d ll )

and

x+n

exp

nPx

p.(y)ely

Derivatives:
d

dt t(jx

Notations:
tlJx

dt

-T
dt'"

-L
dt x

tPx

+ t)

tl

PriT(.r)

tPx . It (:r:

tPx

Pr[T(:c) > t]
attains age

;1;

-1

+t

t+ul]x t])a'

E[T(:r)]

+ 'Ill

=./

t(jx

tP:B elt

t+u])x

tPx' u(]x-t-t

ex)

## Relations with survival functions:

00

Vo.7:T(:r:) ]

2./

,J
,2
t . tPx u,t
- ex

00

integer in T(x)):

Pr[K(.l')

k]

Vo:r[K(.r}]

greatest

Pr[k

T(:r) < k

k]Jx

k+lPx

k=l

+ 1]

ex;

kP", . qx+k

T-r:

klJx

Exam rv[

./ lx+t dt
o

e".

~,

(IA)x

./It + IJlIt,
./It +

am
tPx !/'x(t)dt
n'fll

l,n

1
/5 '

0fll

00Cl

1
d

- nvn

(Ia)fll

(X)

(IA)",

vn

11

(L4)~:m

0
11

(IA);"fll

(IO)OCl

(n

52
(Ia)fll + (Da)m

+ l)Ofll

11

CD"4.);':fll

./(n ItJ

i'IJ

1 +i

id

12

0
T1

(DA);':fll

## ./(n - t)vt , tPdl'x(t)dt

0

(IA)x
(DA)~:fll

Ax + VP:L,(1A)x+l
lIqx + 1)1'rr'
nvqx

## Doubling the constant force of interest 5

1 +i

-4

+ (15A);:fll
(IA)~:fll + (D)l)~:fll = (n + l)A;:fll
(IA )~:fll + (DA)~:fll (n + l)A~;m
(IA);:fll

d
i

+ i)2

--+

-+

2i

+ i2

2d d 2
2i + i 2

25

A o,

## Exam l'vl - Life Cont.ingenciel\$ - LC;D'V

(1
1)2

+ vpx(DA)x~l:n_ll

accumulation factor

-4

A~:fll

nqx

n!Ax

11}1X

Ax:fll
mlnqx

(JA)x

1 +e:r:

(IA)x

eo,

ax

## Whole life annuity:

Recursion relations

J
00

Elan]

at!

t]Jx

+
+ nl

+ t)dt

1 +vpx

,x,)

00

Jvt'tPxdt

1 + v Px

tEx dt

o
1l or [an]

n

(Iii)x

. tllx

dt

1l oriY]

00

E[ii K+lll

'..=0

Yor[oK+lll

JtE~,dt
OC.

rAJ

1,t .

tPx dt

'11-1

Vor[Y]

aX!n)

E[Y] =

Lv

. k]lx

k=O

## n-yr certain and life annuity:

n-yr deferred annuity due:

na,x

+
ex)

E[Y] =
Most important identity
1

ba'T

+ )Ix

)Ix

k=n

1 ba'x:111
1 - (2b)

## n-yr certain and life due: ii'x:111

d
1

Ax:111

0111

Exam

f,/l -

+L
k=n

(lii J ;:111 +

Life COlltingencieh

L . kP"

+n,O'T

. kllx

11k.

kPx

Accumulation function:

=L

. ~'P2:

11

=/-1

k=1

m-thly annuities

## Limit of interest rate i

ax

Vo.r[Y]
1
(ra)

.. (m)

ax:-:m

1 + c 2:

II x

ex
cx:rrl
;=0
---+

-(I

ex

ii,x

o.x:11I

rn.
o'x:nl

;=0
---+

1+

'm

ex:rrl

0:

Loss function:

Loss
PV of Benefit,s - PV of Premiums

P(Ax)

ii",

A,,;

(L4 x

P(A",)

x:h\

1
1

=- -6

P(A:r)

(l,;r

(1 + ~r

\/ar[L]

. 2]

## Pure endowment annual premium PJ::~:

it is the reciprocal of the actuarial accumulated
value
because the share of the survivor who
has deposited P:r:4 at the beginning of each year
for n years is the contractual \$1 pure endow
ment, i.e.

(A,,:)

Var[L]
Var[L]

(1)

(whole life and endowment only):

P(A,,:)

Px
dAa:
1- Ax

P(Ax)

P(Ax)

( pr

ax

1+ d

\/ar[L]
\/ar[L]

## he done by ana.lyzing future benefits:

( n Px
[

l'"
P x:nl)8
x :m

(A,,:) 2]

2Ax (Ax?
(dii.".)2

<Ax - (Ax)2

(1-

A."Y

lVIiscellaneous identities:

P(A x :nl )

P(Ax:m) +6

p(m)
#

Exa.m tv!

+d

/~.

time t.

## Continuous reserve formulas:

Prospective: t V(Ax)

assuming EP

Ax+t - P(Ax)a.x+t

Var[t L ]

ass1lming EP

Paid-np Ins.:

## Cost of insurance: funding of the accumu

lated costs of the death claims incurred between
age ;1: and x + t by the living at t, e.g.

4E x

## Discrete reserve formulas:

lkx

qT
P.T

lX+1

~Vx

Ax-;-n

n~::nl)

0 = A~'+n

.~Vx- nVT

~Vr

AXTm:n-~ - Ax+m

h-payment reserves:

~V

## Relation between various terminal re

serves (whole life/endowment only):

hr7' A
)
Ie' ~ '"ix:nl

1
(I - m~~)(l- nV.,,+m)(l-

Exam ?vI -

Contil1j2; l lcieb - LG D

## Chapter 8: Benefit Reserves

Notations:
death benefit payable at the end of year of death for the j-th policy year
71J~l: benefit premium paid at the beginning of the j-th policy year
bt : death benefit payable at the moment of death
7ft: annual rate of benefit premiums payable continuously at t
Benefit reserve:

br

00

hI!

00

= Lbh+j

j]Jx+h qx+h-tj -

j=O

j=O

ul)x+tfJ~,(t + n)dl1

7ft+u V

li

P2'+t dv

Recursion relations:
hI! + 7fh
(" ~7

l'

+ 7fh)(l + i)

(hI! +

+ 11 Px+h . h+1 If
+ 11x+h . h+1 If

f]x--;-h . bh-'-l

qx+h .

(l+i)

h+ll!

h+1 V)

Terminology:
"policy year h+ 1"
the policy year from time t = h to time t
"h V +
== initial benefit reserve for policy year h + 1
terminal benefit reserve for polky year h
terminal benefit reserve for policy year h + 1
Net amount at Risk for policy year h

= h+1

+1

## ='let Amount Risk

\Vhen the death benefit is defined as a function of the reserve:

For each preminm P, the cost of providing the ensuing year's death benefit, based on the net amount at

risk at age .T + h, is :
- h-ti V). The leftover, P - vqx,h(/)h+l - h+IV) is the source of reserve

## creation. Accullmlated to age :r + 'TI, we have:

71-1

L
h=O

htl it)]

(1

n~1

- L1Hlx+h(bhl-l -

11-'-1 V)(l

h=O

If the death benefit is equaJ to the benefit reserve for the first

h=O

Exam

policy yean,

## plus the benefit reserve for the fiTst n policy years

71-1

nV=V~m-

17

If the death benefit is equal to \$1 pIue; the benefit reserve for the first n policy years ane
COllfltant
nV =

## Reserves at fractional durations:

(h1/

+ 7Th)(l +

+
+ 7T h)(l +

sPx+h' h~:.sV

UDD

'*

(hll

V +8'
Vl~8

h+.sV

UDD
i.E.

'*

h+8V

his 1/)

I-sqx+h+s . bh + 1

. l-sPx+h+s

(1-8)("V+7Th)+"("+lVr)
(1 .'\)(h1/)+
V)+

(1-.5)(7Th)
'-..r---"

Ah
E[Ah]

to

+1

V01'[A h l

~"

LGDZ:

10

qxlh

==

## Chapter 9: Multiple Life Functions

Joint survival function:
(,~,

t)

Pr[T(.1:)

T(J::Y) + T(.TY)
T(:ry) . T(XIJ)

(t,t)

Pr[T(:r.)

+ h(xy)
Fy(xy) +
tP:1'1I + tP.TY

## J oint life status:

FT(t)

Axy+

Prlmin(T(:r),T(y)).s; t]

i'i. xy

T(:r.)

+ T(y)

T(:r.) . T(y)

+
FT(x) +
tPx + tl)y
== Ax + -,,4y

+
+

ex

+ ey

Independant lives
Complete expectation of the last-survivor
status:

tjJ2' . tPy

t!J"

+ tqy

tq," . tqll

tl'Tydt

tus:

(Xl

t1i xy dt

Variances:
00

## PDF joint-life status:

FarfT(l1)]

(t)

tl)u dt

J
J
00

Var[T(.I:Y)]

t . tPxy dt

Independant lives

(t)

\/ar[T(;ry)]

+ t) + I-L(Y + t)
tJ)ylf.L(:r. + t) + f.1(Y + t)]

t t'Pxy dt

t])x .

Notes:
For joint-life Htat1lH, work with p's:

/,])xy

/,P2' . kPy

k(jxy

kqx

Pr[K = k]

k(jy -

k])xy -

nPxll =

[IL]

kqx . Ic(jy

[IL]

k+1Pxy

kPxy . qx+k,y+"

kPxy'
IJx+k

nPxy -

nPx

00

E[K(;ry)]

2.:: kP,ry

nPxy

+ nPy

11

px' nPy

+ nqy - 211.I]x
+ o.y - 20 xy

n!]x

Exam

11

. n(jy

## Common shock model:

Insurances:

(t)

(t) . 8 z (t)

1-

ST*(x)(t) .
(t)

1 - Oo.xy

(t) .

(t) . C- At

(t)

(t)

'T*(y)

j1(;r

(t) . 8.,(t)

(t) . C- At

8Y*(X)(t) .

J1xy(t)

+ t) + J1(Y + t) + A

d
1 _ d

Insurance functions:

A"

Ofj,~.

. "p." . qu+k

-d

k=Q

L
k=O

k]

Pl'[E(

Annuity functions:

00

00

. kPxy'

)' v

tPu dt

00

k=O

Reversionary annuities:
A reversioanry annuity is payable during the ex
istence of one status n only if another status v
has failed. E.g. an annuity of 1 per year payable
continnollsly to (y) after the death of (x).

- (An)2

Vor[Z]
Vor[Z]

2Axy

,VY(x y )]

(A~:

(A 2 y)2

i1xy)( Ay

C01l
T(y)]
(ex

Exa,m 1..,{

(e y

+ {E fT(;r)]

+
[IL]

12

E :Tery)]}

Notations:

hAt, j)

.Joint PDF:

## t yearH due to caUHe .7

fA.j)

Marginal PDF of J:

(t)
00

q~j)

iX'

f:r,J(tLi)dt

= /

## t yearH due to all caUHes

Marginal PDF of T:

f:r(t)

(t)

j=l

171

## the force of decrement d He only

LhAt,

to decrement j

hlrUlt) = ---,.---

Conditional PDF:
Il~T)

## the force of decrement due to all

causeH simultaneously

rn

Survivorship group:

o.

j=l

## probability of surviving t yearH

despite all decrementH
1
t

-/

T.~a+n

(B)ds

(l

:r--a
m

j=1

Derivative:

171

Ll~)
j

) _!idt (

cce

## Integral forms of tqx :

Associated single decrement:
t

p~;T) , p,~)

1 - tq~(j)

## Exam IvI - Life Contingencie~

LGD

13

Basic relationships:

rn

II

I(;)

t Px

## Irh<;tead of summing the benefit8 for each pos

sible cause of death, it is often easier to write
the benefit as one benefit given regardless of the
cause of death and add/8ubtract other henefit8
according to the ca,lse of death.

;=1

t
t.

q~T)
p(T)
x

## Decrements uniformly distributed in the

associated single decrement table:
t

= q~(l)

(1
(1

l(1) (

qx

EXtn11 rvI

1-

1 .1(2) \
-q
I
2

~
2

1(1))

Qx

1(2)
. -

"2 Qx

1
2

...1.

~ql(2)
x

. 3

ql(3))
x

14

## Chapter 15: lVlodels Including Expenses

Notations:
G

b
G /b

face amount of the policy

G

kAS

Ck

Ck

## probability of decrement by death

probability of decrement by withdrawal

"CiI

## cash amount due to the policy holder as a withdrawal benefit

death benefit due at time t

b"

Recursion formula:
(1

+ i)

Direct formula:

G(l

Ch) - eh

h+1 Cl1

h=O

15

Chapter 3

S CJ:)

Z"
nPJ:

E[T]

E'X]

nPx)
1

Var[.1:] =

1/or[T]

Chapter 6

p.

llqx =

ln2
.
]
= Mechan,X
p.

Yledian[T]

P(A~,)

Px = E[K]

ex

P;':11i

wi EP,

qar

Chapter 4

1/ m'[Loss] =

Chapter 7
/-1.

+ (j

O. t 2: 0

t V(A)
x

f."

O. k=O,l,2 ....

f.."+26

Ax (1

nEx)

For

Vo1'[ "Los.s]

p.

If = 0, 1,2, ...

1/a/' [ tLo.~81

q+i

as:mming EP,

1,4 x , t 2: 0

Chapter 9

## For two COllstant forces, i. e.

and Il.F acting on (y), we have:

Chapter 5
1

p.+
1

ax
(hy

+i

1 +i
qJ,y
e xy

1Jxy

qJ'Y
Exam fvI

## Lift Contingencies - LGD<9

16

+i

acting on (.1:)

De Moivre's Law
Chapter 3

1-

8(.1; )

W
W -;r

Ax

l o - - ex: (w -

.1;)

A~:7il

1
W -.r

!J.('r)

a 2(w-x) I
2(w - x)
ow-xl
W -.r
07il
W -.r
(Io)w_xl

2AX

:r

=-

(IA)x

W -.1:

W -.T

w-.r-T/
w-.r

qx = !J.('r) = h(.r) ,
1

,,1','
t1J x

p(.r

+ t)

"2(lx + Ix+d

w-;r:
- 2 - = E[T]

(Io)w-xl
w-.r
(Io)7il
w-.r

(Io)7il

(IA)x

O.:s; t < W

-.T

(IAX:7il
(IAX:7il

W -.1:

= Median[T]

.r _ ~ = E[K]

2
2

(w-.r)2

W -

Vor[T]

Chapter 5
No useful formulas: use ii. x
chapter 4 formulas.

12

(w _.r)2 -1
12
qx
2dx

1 - ~qx
lx + l1:+1

E[8].

0(.1;)

W-;]:

1
2

--
(= MDML with p.
3
2(w - .1:)
3
y-x]Jx Cyy + y-1,qx cy

=-

+ '2 "qx

e1 ':7il +

T/

'2 "l]x

Chapter 4
w-:r:

a'7il
w-.r

{o}

Age 15, w = 85

Chapter 3

ft(;r)

"Px

V or[T]

(1- ~r
10

## (w-.1:)C ex: (w -----:;-

.r)

Chapter 9

W -.1:

c
w

2c+ 1

-.r

o.

w -

.1:

-.r

= E[T]

c+1
Exam rvI - Life Contingenciet> - LGD

2c

ex wIth j.t = -
w -.r

w-.T-n)C
w

= 2/(w - .1:))

## For two lives with different w's, simply translate

one of the age by the difference in w's. E.g.

a'w_xl

8(.r)

an.d t h e

Chapter 9

nnPx

1-Ax
d-

17