Health insurance mathematics - project 2

Oliwier Biernacki
Michal Kotlarczyk
Michal Stypulkowski

April 10, 2019

Contents
1 Model 2
2 Transition intensities for model B 3
3 Survival functions 4
4 Insurance 1 5

1
1 Model
We consider the following four-state life insurance model for a couple, man and woman both
aged x:

• state 1 - both man and woman are alive

• state 2 - man is dead, woman is alive

• state 3 - woman is dead, man is alive

• state 4 - both man and woman are dead

We assume that the deaths of the man and the woman are independent of each other. We
consider three models:
• model A - with constant mortality intensities as in project 1

• model B - with mortality having Gompertz law i.e. µ(t) = Bct for some B > 0 and c > 1

• model C - with actual mortality from life tables

2
2 Transition intensities for model B
As we described carefully the calibration of the transition intensities for model A in the rst
project, we will focus on model B now. Since the deaths of the man and the woman are
independent we may just present the theory focusing on men. Let µ(t) = Bct be the force of
mortality for men, having Gompertz law, where B > 0 and c > 1 are some constants we want
to calibrate. A basic fact from life insurance is that the survival function S(t) = P(T0 > t) is:
 Z t
−B(et − 1)
  
S(t) = exp − µ(s)ds = exp
0 log c

We want to get the best t of the survival fuction to the survival function determined by life
tables using least squares method. We will use gradient descent algorithm.

3
3 Survival functions
Let Tm and Tf be the future lifetimes of a man and a woman both aged 0. We want to compare
survival functions Sm (t) = P(Tm > t) and similarly Sf (t). We will describe the theory for men,
and then present the plots for both men and women.
• model A - as we proved in project 1, Sm (t) are the tails of the cdf of Exp(µm ) distribution,
that is Sm (t) = 1 − e−µm t
t
• model B - it was shown in the previous section that Sm (t) = exp( −B(e −1)
log c
)

• model C - let lt be the number of men from the examined population who survived to
age t, then Sm (t) = lt : l0

4
4 Insurance 1