Winter term 2020/21 Sheet 7

Dr. Stefan Schelling

Dr. Manuel Rach

Exercises in Life-, Health- and Pension-Mathematics

Exercise 7.1 (Transition probabilities I)
Use the sample tables (“Tables Pension Insurance”) for a 46-year old male who is in the
main state “active” (unless otherwise stated). What is his probability to . . .

(a) . . . reach age 49 in state “active”?

(b) . . . reach age 49 in state “disabled” (under the assumption that he is already disabled
at age 46)?
(c) . . . die in the age interval (48,49] , while being in the state “disabled”?
(d) . . . reach age 49?

Exercise 7.2
At the age of 25 Harry Mustermann signs a private health insurance contract. Using the life
table for private health insurance (“Tables Health Insurance” in Moodle), find the probability
that his policy is still active at the age of 65.

Exercise 7.3 (Health insurance model)

Find the one-year transition matrix for a Markovian health insurance model with state space
S = {a,w,d} and the following transitions:

dead “d”

qx
qx

active “a”

w
x

cancelled “w”
Give a definition or description of the probabilities used in the transition matrix.

Exercise 7.4 (Health Insurance Model II)

Consider again the Markovian health insurance model with state space S = {a,w,d} from
Exercise 7.3. Consider an x = 50 -year old male.

(a) Express the male’s 1-year death probability in terms of the annual death and cancel-
lation probabilities qx , wx , qx+1 , wx+1 , qx+2 , wx+2 , . . . .
Hint: Use the usual approximation: p0,1 (a,d) ≈ qx + wx · 1 qx+ 1 .
2 2

(b) Express the male’s 2-year death probability in terms of the annual death and cancel-
lation probabilities qx , wx , qx+1 , wx+1 , qx+2 , wx+2 , . . . .
Solution 7.1

a
a l49
(a) 3 p46 = a
= 0. 983396 .
l46
i
i l49
(b) 3 p46 = i
= 0. 887934 .
l46
(c)
i
 
1 − q46
j = 0 : P(· · · ) = i46 1 i
i
(pi47 ) q48 = 0. 00011 .
1 − 2 q46
i
 
a 1 − q47 i
j = 1 : P(· · · ) = p46 i47 q48 = 0. 00013,
1 − 12 q47
i

a
l47
where pa46 aa
is computed as 1 − q46 − i46 or as a
.
l46
1 i
q
2 48
j = 2 : P(· · · ) = 2 pa46 i48 = 0. 00008 .
1 − 21 q48
i

2
X
⇒ P (· · · ) = 0. 00033 .
j=0

(d)
i
 
1 − q46 i
j = 0 : P(· · · ) = i46 2 p47 = 0. 00282 ,
1 − 12 q46
i

i
l49
i
with 2 p47
= i .
l47
i
 
a 1 − q47
j = 1 : P(· · · ) = p46 i47 (pi48 ) = 0. 00329 .
1 − 12 q47
i

i a i
   
a 1 − q48 l48 1 − q48
j = 2 : P(· · · ) = 2 p46 i48 = a i48
1 − 12 q48i l46 1 − 12 q48
i

= 0. 00384 .
X2
⇒ P(· · · ) + 3 pa46 = 0. 99335 with 3 pa46 from (a) .
j=0

Solution 7.2
l65 75 355. 238
40 p25 = = = 0. 13366 .
l25 563 764. 129

Solution 7.3
qx is the probability of death before cancellation and wx is the probability of cancellation
before death. Let us assume that death probabilities do not change after cancellation.
In private health insurance we consider the state space S = {a,w,d} , hence a one-year
transition matrix has the following form:
  

p0,1 (a,a) p0,1 (a,w) p0,1 (a,d) px wx 1 − 1 qx+ 1 qx + wx · 1 qx+ 1
2 2 2 2
p0,1 (w,a) p0,1 (w,w) p0,1 (w,d) =  0 1 − qx qx 
p0,1 (d,a) p0,1 (d,w) p0,1 (d,d) 0 0 1

Solution 7.4
From Exercise 7.3, we know that the one-year transition matrix has the following form:
   
p0,1 (a,a) p0,1 (a,w) p0,1 (a,d) px wx (1 − 1 qx+ 1 ) p0,1 (a,d)
2 2
T (x) := p0,1 (w,a) p0,1 (w,w)
 p0,1 (w,d) =  0 1 − qx qx  .
p0,1 (d,a) p0,1 (d,w) p0,1 (d,d) 0 0 1

(a) The annual death probability is p0,1 (a,d) . It consists of transitions a → w → d and
a → d . With the usual approximation, we get
1
q
2 x
p0,1 (a,d) ≈ qx + wx · 1 qx+ 1 = qx + wx · .
2 2 1 − 12 qx

(b) As a first step, compute the 2 -year transition matrix by multiplying the annual tran-
sition matrices, i.e.


px wx 1 − 1 qx+ 1 p0,1 (a,d)
2 2
Π(0,1) · Π(1,2) =  0 1 − qx qx  ·
0 0 1


px+1 wx+1 1 − 1 qx+ 3 p1,2 (a,d)
2 2
· 0 1 − qx+1 qx+1 
0 0 1



px · px+1 px · wx+1 1 − 1 qx+ 3 + wx 1 − 1 qx+ 1 (1 − qx+1 ) p0,2 (a,d)
2 2 2 2
= 0 (1 − qx )(1 − qx+1 ) (1 − qx )qx+1 + qx  ,
0 0 1


where p0,2 (a,d) := px · p1,2 (a,d) + wx 1 − 1 qx+ 1 · qx+1 + p0,1 (a,d) . With the usual
2 2
approximation, we get the 2 -year death probability
!
1 1
q x+1 qx
p0,2 (a,d) ≈ px · qx+1 + wx+1 · 2 1 + wx 1 − 1 qx+ 1 · qx+1 + qx + wx · 2 1


1 − 2 qx+1 2 2 1 − 2 qx
!
1
qx+1
= 1 − wx − qx · qx+1 + wx+1 · 2 1


1 − 2 qx+1
!
  1
1 − qx q x
+ qx + wx qx+1 · + 2 1 .
1 − 21 qx 1 − 2 qx