Lecture 1 - Survival Models

Lecturer: Trần Minh Hoàng

Actuarial Mathematics 1

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Table of Contents

1 The future lifetime random variable

2 Force of mortality

3 Actuarial notation

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 The future lifetime random variable

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The future lifetime random variable

Let (x) denote a life aged x.

Let Tx be the future lifetime of (x). That means x + Tx is the age-at-death
for (x).
We model Tx as a continuous random variable.
Let Fx be the distribution function of Tx , so that

Fx (t) = P[Tx ≤ t].

Then Fx (t) represents the probability that (x) does not survive beyond age
x + t, and we refer to Fx as the lifetime distribution from age x.

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Survival function

Distribution of Tx can also be characterised by its survival distribution

function
Sx (t) = 1 − Fx (t) = P(Tx > t).
This is the probability that (x) survives for at least t years.

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An important assumption

We have a collection of random variables {Tx }x≥0 each has its own
distribution function.
To connect these random variables we make the following assumption:
The event {Tx ≤ t} is equivalent to {T0 ≤ x + t} given that {T0 > x}.
In other words:
P(x < T0 ≤ x + t)
P(Tx ≤ t) = P(T0 ≤ x + t|T0 > x) = .
P(T0 > x)

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An important assumption 2

Proposition
We have the following identities

S0 (x + t) = S0 (x)Sx (t),
Sx (t + u) = Sx (t)Sx+t (u).

This is a very important result. It shows that we can interpret the probability of
survival from age x to age x + t + u as the product of
the probability of survival to age x + t from age x, and
the probability, having survived from age x to age x + t, of further surviving
to age x + t + u.

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Properties of a survival function

Condition 1. Sx (0) = 1; that is, the probability that a life currently aged x
survives 0 years is 1.
Condition 2. limt→∞ Sx (t) = 0; that is, all lives eventually die.
Condition 3. The survival function must be a non-increasing function of t;

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Further assumptions

We make further assumptions on the survival distribution function to ensure Tx

has finite mean and variance.
Assumption 1. Sx (t) is differentiable for all t > 0.
Assumption 2. limt→∞ tSx (t) = 0.
Assumption 3. limt→∞ t 2 Sx (t) = 0.

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Example

Example
Suppose the distribution of the lifetime from birth random variable T0 is given by
 t 6
F0 (t) = 1 − 1 − for 0 ≤ t ≤ 120.
120
Calculate the probability that
a) a newborn life survives beyond age 30,
b) a life aged 30 dies before age 50, and
c) a life aged 40 survives beyond age 65.

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Limiting age

Note that in the previous example, survival beyond age 120 is impossible. We refer
to 120 as the limiting age of this model. In general, limiting age in a survival
model is denoted by ω.

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 Force of mortality

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Force of mortality

Definition
The force of mortality at age x is denoted by µx and is defined as

P(T0 ≤ x + ∆x|T0 > x)

µx := lim + .
∆x→0 ∆x
Equivalently, µx can be defined as

P(Tx ≤ ∆x)
µx := lim + .
∆x→0 ∆x

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Interpretation of µx

The force of mortality is best understood by noting that for very small ∆x, we
have the approximation

µx ∆x ≈ P(T0 ≤ x + ∆x|T0 > x). (1)

That is for µx ∆x is approximately the probability that a life having survived x

years is to die within the next ∆x years.

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From Sx (t) to µx+t

Theorem
We can find µx and µx+t from S0 (x) and Sx (t) by

1 dS0 (x)
µx = − ,
S0 (x) dx
1 dSx (t)
µx+t =− .
Sx (t) dt

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From Sx (t) to µx+t

Corollary
Let f0 (t) and fx (t) be the probability density functions of T0 and Tx . Then

f0 (x) fx (t)
µx = , µx+t = .
S0 (x) Sx (t)

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From µx+t to Sx (t)

Theorem
We can find S0 (x) and Sx (t) from µx and µx+t by
 Z x 
S0 (x) = exp − µs ds ,
0
 Z t 
Sx (t) = exp − µx+s ds .
0

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Example: the Generalized De Moirve Law of mortality

Example
Suppose S0 (x) is given by
 x n
S0 (x) = 1 − for 0 ≤ x ≤ ω
ω

a) Find an expression for Sx (t).

b) Find an expression for µx .

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Example: Makeham’s Law of mortality

Example
Suppose µx = A + Bc x where 0 < B < 1 and c > 1.
a) Derive an expression for Sx (t).
b) Derive an expression for fx (t).
In the special case when A = 0, this model is called the Gompertz’s Law.

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 Actuarial notation

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Actuarial notation

The notation used in the previous sections, Sx (t), Fx (t) and fx (t), is
standard in statistics.
Actuarial science has its own notations. It is important that we are aware of
both sets of notation but will mainly use the actuarial notation from now on.
The basic actuarial notation are (there are many more).

Actuarial symbols Definition Statistics equivalence

t px P(Tx > t) Sx (t)
t qx P(Tx ≤ t) Fx (t)
u|t qx P(u < Tx ≤ u + t) Sx (t) − Sx (t + u)

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Actuarial notation - explained

t px is the probability that (x) survives to at least age x + t,

t px is the probability that (x) dies before age x + t,
u|t qx is the probability that (x) survives u years, and then dies in the
subsequent t years, that is, between ages x + u and x + u + t.
u|t qx is called a deferred mortality probability, because it is the probability
that death occurs in some interval following a deferred period.
We may drop the subscript t if its value is 1, so that px represents the
probability that (x) survives to at least age x + 1.
Similarly, qx is the probability that (x) dies before age x + 1. In actuarial
terminology qx is called the mortality rate at age x.

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Basic Identities - t px , t qx & u|t qx

Proposition

t px + t qx = 1
u|t qx = u px − u+t px = (u px )(t qx+u ),
u+t px = (u px )(t px+u ).

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Basic Identities - t px & µx+t

Proposition

1 d t px
µx+t = − ,
t x dt
p
 Z t 
t px = exp − µx+s ds
0

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Basic Identities - µx+t , t px , t qx & fx (t)

Proposition
Z t
fx (t) = t px µx+t & t qx = s px µx+s ds.
0

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Time-line diagram for t qx

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Approximation for qx

Corollary
Z 1
qx ≈ µx+s ds ≈ µx+1/2 . (2)
0

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Example: Pareto distribution

Example
Suppose  α
λ
x p0 =
λ+x
where α, λ > 0. Calculate µx , fx (t), t px , t qx .

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