Contents

1 Binomial model - without censoring

2 Binomial model - with censoring

3 Initial exposed to risk

4 Central exposed to risk

5 Poisson model

Binomial model - without censoring

Binomial model
Assume
we observe Nx independent lives at exactly aged x at the beginning of the year, for one whole year
we observe dx deaths
each life has a probability qx of death of over that year (initial rate of mortality)
Then the random variable Dx , number of deaths, is
Dx Binomial (Nx , qx ) ,
that is,

Pr [Dx = dx ] =


Nx dx
N d
q (1 qx ) x x dx = 0, 1, 2, . . . Nx .
dx x

Maximum likelihood estimation

Under the Binomial model, the loglikelihood is

ln L (qx ) = ln
so that

Nx
dx


+ dx ln qx + Nx dx ln (1 qx )

dx
Nx dx

ln L (qx ) =

.
qx
qx
1 qx

First order condition yields

qx =

dx
Nx

Noting
2
dx
(Nx dx )
ln L (qx ) |qx = dx = 2
2 <0
Nx
qx2
qx
(1 qx )
confirms that qx is MLE.
Properties of maximum likelihood estimator:
unbiased E [
qx ] = qx
qx (1 qx )
(minimum variance of all estimators - efficient)
Nx


x)
asymptotically qx N ormal qx , qx (1q
Nx

V ar [
qx ] =

Example
Consider a mortality investigation over 1 year. There were 27000 individuals aged exactly 60 at the beginning of the year and
there were 45 deaths. Estimate q65 , and also provide a 95% confidence interval.
We have
q65 =
so that the confidence interval is

45
27000

r
q65 (1 q65 )
45
1.96
= (0.00118, 0.00215)
27000
N

Binomial model - with censoring

Assume now that

All lives are not necessarily observed over the complete year x to x + 1, that is, there may be decrements other than death
(right censoring); and also the possibility of increments (left truncation)
Hence, we observe a life from age x + ai to age x + bi (0 ai < bi 1)
For each life we know di , ai and bi
Consider the random variable

Di =

0 if the ith life survives from age x + ai to age x + bi , and

1 if the ith life dies

so that
Pr [Di = 1]

bi ai qx+ai

Pr [Di = 0]

1 bi ai qx+ai

Maximum likelihood estimation

Assuming independence, the likelihood of the total sample will be
N
  Y
d
1d
L ~q; d~ =
(bi ai qx+ai ) i (1 bi ai qx+ai ) i
i=1

where ~q = (b1 a1 qx+a1 ,b2 a2 qx+a2 , ,bN aN qx+aN ) d~ = (d1 , d2 , , dN ).

Maximum likelihood estimation
Note:
unless we are using a (continuous) parametric model for the probabilites of death, there are potentially as many probabilities
of death to estimate as data points
another possibility is to reformulate all as a function of qx using assumptions (0 t 1):
uniform distribution of deaths: t qx = t qx , or
Balducci assumption:

1t qx+t

= (1 t) qx , or

constant force of mortality: t qx = 1 et

Example
In a mortality investigation, the following data have been recorded for 6 independent lives observed between exact age 70 and
exact age 71.
bi
di ti
Life i ai
1
0
1
0
2
0.3 0.9 0
3
0.5 1
1
0.9
4
0
0.4 0
5
0
0.9 1
0.7
6
0
1
1
0.8
Using the Binomial Model of Mortality the likelihood of these observations is
LB = p70 0.6 p70.3 0.5 q70.5 0.4 p70 0.9 q70 q70

The actuarial estimate

PN
Let D be the number of deaths ( i=1 Di ). We have then
E [D] =

N
X

(bi ai qx+ai )

i=1

Now note that

bi ai qx+ai

Furthermore, using Balducci assumption



Pr ith life dies between x + ai and x + bi


Pr ith life dies between x + ai and x + 1


Pr ith life dies between x + bi and x + 1

1ai qx+ai

1ai qx+ai

E [D]

(bi ai px+ai ) (1bi qx+bi )

= (1 ai ) qx and

N
X

1bi qx+bi

= (1 bi ) qx we obtain

(bi ai qx+ai )

i=1

N
X

[1ai qx+ai (bi ai px+ai ) (1bi qx+bi )]

i=1

N
X

[(1 ai ) qx (bi ai px+ai ) (1 bi ) qx ]

i=1

N
X

[(1 ai ) qx [1 E [Di ]] (1 bi ) qx ]

i=1

Now we substitute E [Di ] = di and E [D] = d (where d =

d=

N
X

PN
i

di )to get
X

(1 ai ) qx

i=1

(1 bi ) qx

i;Di =0

which gives a moment estimate qx of

d
P

qx = PN

i=1 (1 ai )

i;Di =0

(1 bi )

This is what is called the actuarial estimate

Discussion
simple model
estimates qx (but no more)
does not generalize easily to settings with more than one decrement models
3

Initial exposed to risk

Initial exposed to risk

Recall the actuarial estimate
d
P
i=1 (1 ai )
i;Di =0 (1 bi )

qx = PN
We can rewrite it as

qx =

dx
Ex

where the Initial exposed to risk Ex is defined as

Ex =

N
X

(1 ai )

i=1

(1 bi ) =

i;Di =0

N
X

(1 ai ) +

i:Di =1

(bi ai )

i;Di =0

Note:
deaths contribute the period of length (1 ai ) from x + ai to x + 1
survivors contribute the period of length (bi ai ) from x + ai to x + bi

Example
A mortality investigation on 9 lives aged between 65 and 66 was conducted. For each individual i, we have observed
1. the exact time since age 65 that life i came under observation and is censored is ai and bi , respectively
2. the indicator di whether death occurred prior to censoring or not (di = 1 if death occurred prior to censoring, di = 0 if
death was not observed)
3. the exact time since age 65 when death is observed: ti
Given the following results
Life
1
2
3
4
5
6
7
8
9

ai
0.2
0
0
0.5
0
0
0
0.2
0.4

bi
0.8
0.6
1
1
1
0.8
1
0.6
1

ti
0.7
0.5
0.45
0.75

di
0
0
0
0
0
1
1
1
1

we have
Ex
qx

0.6 + 0.6 + 1 + 0.5 + 1 + 1 + 1 + 0.8 + 0.6 = 7.1

4
=
= 0.563
7.1

Discussion
Approximation to a method of moments estimator
the actuarial estimate avoids numerical solution of equations
however, the actuarial estimate may not necessarily be simpler than estimates based on multiple state model: when the
exposure data are of census type, the computation of the initial exposed to risk is very complicated.

Central exposed to risk

Central exposed to risk

Sometimes we actually know when deaths occur, say x + ti . We can then modify the initial exposed to risk to a central exposed
to risk
N
X
X
Exc =
(bi ai ) (1 di ) +
(ti ai ) di
i=1

i=1

where
deaths contribute the period of length (ti ai ) from x + ai to x + ti
survivors contribute the period of length (bi ai ) from x + ai to x + bi .
When the exact times of deaths are not available, but Exc is, the usual approch is to assume that deaths occur on average at age
x + 21 so that the actuarial estimate becomes
d
qx = c d
Ex + 2
because under that assumption
d
Ex = Exc + .
2
Proof:
Ex

N
X

i:Di =1
N
X

(1 ai ) +

(bi ai )

i;Di =0

i:Di =1

N
X

N
X

(1 ti + ti ai ) di +

N
X

(bi ai ) (1 di )

(1 ti ) di +

i=1

(bi ai )

i;Di =0

i=1

(1 ti + ti ai ) +

N
X

(ti ai ) di +

i=1

(1 ti ) di + Exc =

i=1
Exc +

(bi ai ) (1 di )

i
N 
X

i=1

1
2

di + Exc

d/2

Example
A total of N lives between the ages of x and x + 1 are under investigation. The ith (i = 1, , N ) life was observed from age
x + ai to x + bi (0 ai < bi 1). You have observed di with di = 1 if ith life is observed to die, and di = 0, otherwise. You
have not recorded the exact time of deaths. However, you do know that the average age of those deaths that you have observed
is x + 43 .
Find the initial exposed to risk at age x and the relationship between the initial and central exposed to risk at age x.
Solution
Ex =

N
X

(1 ai ) di +

i=1

Exc =

N
X

N
X

(bi ai ) (1 di )

i=1

(bi ai ) (1 di ) +

i=1

N
X
i=1

(ti ai ) di

Solution (continued)

Ex

N
X

(1 ai ) +

i:di =1

N
X

N
X

(bi ai )

i;di =0

(1 ti + ti ai ) di +

N
X

i=1

N
X

(1 ti ) di +

i=1

(bi ai ) (1 di )

i
N
X

(ti ai ) di +

i=1


N 
X
3
di + Exc
1
4
i=1

1
d + Exc
4

N
X

(bi ai ) (1 di )

Poisson model

Assume
We observe Nx individuals over a year of age (starting from exactly age x)
We assume a constant force of mortality x over the observed period for each individual in age interval (x, x + 1)
The sum of all of those observed periods is Exc , or observed waiting time v
This means that the time to death of each individual (within that year) is exponential, and hence (iff) that the number of deaths
Dx is Poisson (if they can die several times):
c

Pr [Dx = dx ] =

eEx (Exc )
dx !

dx

dx = 0, 1, 2, . . .

with E [Dx ] = V ar (Dx ) = Exc .

Note that this implicitly allows for the possibility that there will be more than Nx deaths.
Maximum Likelihood Estimation
Likelihood of observing dx deaths is

L (x ) =

ex Ex (x Exc )
dx !

dx

with Log-likelihood
ln L (x ) = x Exc + d (ln x + ln Exc ) ln (dx !) .
Differentiate

dx
ln L (x ) =
Exc = 0
x
x
2
dx
ln L (x ) = 2 < 0
2x
x

leads to the estimator

x =

Dx
Exc

Example
In a mortality
exact age 71.
Life i ai
1
0
0.3
2
3
0.5
4
0
5
0
6
0
71), find MLE

investigation, the following data have been recorded for 6 independent lives observed between exact age 70 and
bi
di
1
0
0.9 0
1
1
0.4 0
0.9 1
1
1
of q70 .

ti

0.9 Using the Poisson Model of Mortality and assuming a constant force of mortality, 70 over (70,
0.7
0.8

Solution
We have
c
E70
= 1 + 0.6 + 0.4 + 0.4 + 0.7 + 0.8 = 3.9

The likelihood is
LP =

(3.970 )3 e3.970
3!

with log
log LP = 3 log 70 3.970 + 3 log 3.9.
Differentiating log LP with respect to 70 , setting the derivative to zero and checking second derivative (negative) we get:

70 =
Since q70 = 1 e70 we have

3
= 0.769
3.9

q70 = 1 e70 = 1 e0.769 = 0.537

Properties of the estimator

Since Dx has a Poisson(Exc ) distribution,

E[Dx ] = V ar[Dx ] = x Exc

and we have

Dx
x Exc
, and
=
c
Ex
Exc


Dx
x Exc
x
= V ar
=
= c.
c
c
2
Ex
(Ex )
Ex


E[
x ]
V ar[
x ]

= E

Furthermore, since
x is an MLE it is asymptotically normally distributed:


x

x N x , c
Ex

Example
In a mortality investigation covering a 5-year period, where the force of mortality can be assumed to be constant, there were 46
deaths and the population remained approximately constant 7,500.
The MLE is then
dx
46

x = c =
= 0.00123
Ex
7, 500 5


x
Since
x N x , E
we can obtain a 95% confidence interval for x :
c
x

x 1.96

x
0.00123
=
0.00123

1.96
= (0.00087, 0.00158).
Exc
7, 500 5