MLC Section 2-7

Chapter 2. Survival models.
Manual for SOA Exam MLC.

Chapter 2. Survival models. Section 2.7 Common Analytical Survival Models
c 2009. Miguel A. Arcones. All rights reserved.
Extract from: Arcones Manual for SOA Exam MLC. Fall 2009 Edition, available at http://www.actexmadriver.com/
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Section 2.7 Common Analytical Survival Models.
Common Analytical Survival Models
Sometimes it is of interest to assume that the survival function follows a parametric model, i.e. it is of the form S (x , ), where is an unknown parameter. There are several reasons to make this assumption: 1. Data supports this assumption. Actuaries realized that the models observed in real life follow this assumption. 2. Computations are simpler using a parametric model. 3. There are valid scientic reasons to justify the use of a particular parametric model.
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The most common approach is not to use parametric models due to the following reasons: 1. Modern computers allow to handle the computations needed using the collected data. 2. It is dicult to justify that a parametric model applies. 3. Knowing that a particular model applies we can get more accurate estimates. But, this increase in accuracy is not much. If a parametric model does not apply, using the parametric approach we can get much worse estimates than the nonparametric estimates.
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De Moivre model.
De Moivres law (1729) assumes that deaths happen uniformly over the interval of deaths, i.e. the density of the ageatfailure is 1 , for 0 x . Therefore, fX (x ) = SX (x ) = x , for 0 x < , x FX (x ) = , for 0 x < , 1 (x ) = , for 0 x < , x s (x + t ) x t = , for 0 t x , t px = s (x ) x t , for 0 t x . t qx = x
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Example 1
Find the median of an ageatdeath subject to de Moivres law if 1 the probability that a life aged 20 years survives 40 years is 3 .
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Example 1
Find the median of an ageatdeath subject to de Moivres law if 1 the probability that a life aged 20 years survives 40 years is 3 . Solution: We know that 40 p20 = 2 3 . For the uniform distribution, 1 2040 x t t px = x . Hence, 3 = 20 , 20 = 3 180 and = 80. Let m be the median of the ageatdeath. Then, 1 m 80 m = SX (m) = = 2 80 and m = 40.
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Under the De Moivres law, T (x ) has a uniform distribution on the interval [0, x ]. Hence,
Theorem 1
For the De Moivres law, ex =
( x )2 x and Var(T (x )) = . 2 12
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Example 2
Suppose that the survival of a cohort follows the De Moivres law. Suppose that the expected ageatdeath of a new born is 70 years. Find the expected future lifetime of a 50year old.
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Example 2
Suppose that the survival of a cohort follows the De Moivres law. Suppose that the expected ageatdeath of a new born is 70 years. Find the expected future lifetime of a 50year old. Solution: Since 70 = e0 = lifetime of a 50year old is
2,
= 140. The expected future
e 50 =
140 50 = 45. 2
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Theorem 2
For the de Moivres law, for 0 x , x, integers, ex = x 1 . 2
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Theorem 2
For the de Moivres law, for 0 x , x, integers, ex = Proof: We have that
x
x 1 . 2
ex =
k =1
x k = x
1
k =1 k =1
k x
x )(( x ) + 1) x) + 1 =( x ) = ( x ) 2( x ) 2 x 1 . = 2
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Theorem 3
For the de Moivres law with terminal age , where is a positive integer, and each for 0 x , where x is an integer, P{K (x ) = k } = and
k 1 P{Kx = k } = p1 (1 p1 ), k = 1, 2, . . . , x 1.
1 , k = 0, 1, 2, . . . , x . x
Proof:
k +1
P{K (x ) = k } = P{k < Tx k + 1} =

k
1 1 dt = x x
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Exponential model.
An exponential model assumes that the ageatdeath has an exponential distribution, i.e. SX (x ) = e x , x 0 where > 0. In this case, FX (x ) = 1 e x , for 0 x , fX (x ) = e x , for 0 x , (x ) = , for 0 x , s (x + t ) t . = e t = px t px = s (x ) For an exponential model, the force of mortality is constant. The exponential model is also called the constant force model.
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Example 3
Suppose that: (i) the force of mortality is constant. (ii) the probability that a 30yearold will survive to age 40 is 0.95. Calculate: (i) the probability that a 40yearold will survive to age 50. (ii) the probability that a 30yearold will survive to age 50. (iii) the probability that a 30yearold will die between ages 40 and 50.
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Example 3
Suppose that: (i) the force of mortality is constant. (ii) the probability that a 30yearold will survive to age 40 is 0.95. Calculate: (i) the probability that a 40yearold will survive to age 50. (ii) the probability that a 30yearold will survive to age 50. (iii) the probability that a 30yearold will die between ages 40 and 50. Solution: (i) Since the force of mortality is constant, 10 p40 = 10 p30 = 0.95.
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Example 3
Suppose that: (i) the force of mortality is constant. (ii) the probability that a 30yearold will survive to age 40 is 0.95. Calculate: (i) the probability that a 40yearold will survive to age 50. (ii) the probability that a 30yearold will survive to age 50. (iii) the probability that a 30yearold will die between ages 40 and 50. Solution: (i) Since the force of mortality is constant, 10 p40 = 10 p30 = 0.95. (ii) 20 p30 = 10 p30 10 p40 = (0.95)(0.95) = 0.9025.
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Example 3
Suppose that: (i) the force of mortality is constant. (ii) the probability that a 30yearold will survive to age 40 is 0.95. Calculate: (i) the probability that a 40yearold will survive to age 50. (ii) the probability that a 30yearold will survive to age 50. (iii) the probability that a 30yearold will die between ages 40 and 50. Solution: (i) Since the force of mortality is constant, 10 p40 = 10 p30 = 0.95. (ii) 20 p30 = 10 p30 10 p40 = (0.95)(0.95) = 0.9025. (iii) We can do either
10 |10 p30
= 10 p30 20 p30 = 0.95 0.9025 = 0.0475. = 10 p30 10 q40 = (0.95)(1 0.95) = 0.0475.
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or
10 |10 p30
c 2009. Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Theorem 4
Suppose that the lifetime random variable of a new born has constant mortality force . Then, ex =
1 1 and Var(X ) = 2 .
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Theorem 4
Suppose that the lifetime random variable of a new born has constant mortality force . Then, ex =
1 1 and Var(X ) = 2 .
Proof: Since t px = e t , T (x ) has an exponential distribution 1 with mean .
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Theorem 5
Suppose that the lifetime random variable of a new born has constant mortality force . Then, the curtate future lifetime of (x ) is ex = 1 . e 1
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Theorem 5
Suppose that the lifetime random variable of a new born has constant mortality force . Then, the curtate future lifetime of (x ) is ex = Proof: We have that
k px = k =1 k =1
1 . e 1
ex =
e k =
e 1 = . 1e e 1
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Example 4
Suppose that: (i) the force of mortality is constant. (ii) the probability that a 30yearold will survive to age 40 is 0.95. Calculate: (i) the future lifetime of a 40yearold. (ii) the future curtate lifetime of a 40yearold.
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Example 4
Suppose that: (i) the force of mortality is constant. (ii) the probability that a 30yearold will survive to age 40 is 0.95. Calculate: (i) the future lifetime of a 40yearold. (ii) the future curtate lifetime of a 40yearold. Solution: (i) We know that 10 p30 = 0.95 = e (10) . Hence, .95) 1 10 = ln(0 and e 40 = = ln(0 10 .95) = 194.9572575.
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Example 4
Suppose that: (i) the force of mortality is constant. (ii) the probability that a 30yearold will survive to age 40 is 0.95. Calculate: (i) the future lifetime of a 40yearold. (ii) the future curtate lifetime of a 40yearold. Solution: (i) We know that 10 p30 = 0.95 = e (10) . Hence, .95) 1 10 = ln(0 and e 40 = = ln(0 10 .95) = 194.9572575. 0 . 1 (ii) Since e = (0.95) , 1 e40 = e 1 1 = (0.95)0.1 1 = 194.4576849.
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Gompertz model.
Gompertzs model (1825) says that x = Bc x , where B > 0 and x B c > 1. Hence, s (x ) = e m(c 1) for x 0, where m = log c.
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Makeham model.
Makehan (1860) introduced the model x = A + Bc x , where x A B , B > 0 and c > 1. Hence, s (x ) = e Ax m(c 1) for B x 0, where m = log c . We also have that fX (x ) = s (x )(x ) = (A + Bc x )e Ax m(c
x 1)
, x 0.
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Weibull model.
Weibull (1939) introduced the model (x ) = kx n , for x 0, where k > 0 and n > 1. Then, s (x ) = e fX (x ) = s (x )(x ) = kx n e
kx n+1 n+1
,x 0
n+1 kx n+1
, x 0.
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Chapter 2. Survival models.

Manual for SOA Exam MLC.

c 2009. Miguel A. Arcones. All rights reserved.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

Common Analytical Survival Models

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

= 140. The expected future

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

P{K (x ) = k } = P{k < Tx k + 1} =

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.

Manual for SOA Exam MLC.

Chapter 2. Survival models.

Section 2.7 Common Analytical Survival Models.

c 2009. Miguel A. Arcones. All rights reserved.