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Actuarial Math
Actuarial Math
(Mortality table)
Week 4
1
Road Map
⚫ Basic definitions
⚫ Probabilities
⚫ Constructing life tables from the values of qx
⚫ Life expectancy
⚫ Choice of life tables
⚫ Standard notation and terminology
⚫ A sample table
2
Constructing life table from the values
of qx
3
With life tables the figures may be computed directly
without carrying out any observation!
How long can a person age 𝑥 expect to live?
Life expectancy
7
Life expectancy cont’d
⚫ Notes
– Life expectancy is a function of age
⚫ For each age x, the life expectancy at that age gives the
average number of future years that (x) will live
8
1 𝑙𝑥 − 𝑙𝑥+𝑛
Adding to (1) gives
2 𝑙𝑥
𝑛𝑞𝑥
Life expectancy cont’d
⚫ The quantity:
𝑛 𝑛
𝑙𝑥+𝑘
= 𝑘𝑝𝑥 = 𝑒𝑥:𝑛|
ത (1)
𝑙𝑥
𝑘=1 𝑘=1
(Curtate n-year temporary life expectancy at age x)
(It gives us the expected complete number of years lived
over the next n years by people now age x)
𝑛
1 𝑜
( 𝑘𝑝𝑥 ) + 𝑛𝑞𝑥 = 𝑒𝑥:𝑛|
ത
2
𝑘=1
9 (Complete n year temporary life expectancy at age x)
Active learning
10
What are the major factors affecting future mortality?
Why do you think women generally live longer than men?
12
(Actuarial device used to denote “waiting
period”)
Standard notation
𝑛|𝑘 𝑞𝑥 Probability that a (x) will die between age x+n and x+n+k
(:, the person will wait n years and die in the following k years)
𝑛|𝑞𝑥 denote 𝑛|1𝑞𝑥
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Sample life table
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Active learning
16
If you were to choose how many years you want to live,
how many will you choose?
Life annuities
Week 4
17
Life annuities
⚫ Objective
– Compute premium for life annuity
⚫ Purpose
– To be able to assign the right premium for an applicant
of an annuity as an employee of a life office
18
Road map
⚫ Introduction
⚫ Calculating annuity premiums
⚫ The interest and survivorship discount function
⚫ Guaranteed payments
⚫ Deferred annuities with annual premiums
⚫ Some practical considerations
⚫ Standard notation and terminology
⚫ Spreadsheet calculations
19
Introduction
⚫ General case:
𝑎ሷ 𝑥 (𝑐) single premium for a life annuity on (x) with
benefit vector c
Premium for such an endowment is just:
𝑐𝑘 𝑣(𝑘) 𝑘𝑝𝑥
Hence total premium:
𝜔−𝑥−1
𝑎ሷ 𝑥 𝑐 = 𝑐𝑘 𝑣(𝑘) 𝑘𝑝𝑥
𝑘=0
24
3.28
Example
25
Active learning
26
Calculating annuity premiums
cont’d
⚫ Classification of annuities
Temporary life annuity
Life annuity Whole life annuity
Deferred annuity
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The basic definition
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𝑣(𝑛, 0)
The basic definition cont’d
⚫ Note:
– The amount at time n resulting from an investment
of 1 at time 0 (by
is: this definition)
𝑣(𝑛, 0)
𝑦𝑥 𝑛, 0 = > 𝑣(𝑛, 0)
𝑛𝑝𝑥
⚫ It follows that
𝑎ሷ 𝑐 = 𝑎(𝑐,
ሷ 𝑦𝑥 )
(PV of all payments wrt to the discount function 𝑦𝑥 )
Call 𝑎(𝑐)
ሷ the net single premium or present values
Notation
The vector 1ω-x is written 1 when using 𝑦𝑥
3.28
32
Active learning
33
Relation between 𝑦𝑥 for various values
of x
⚫ If interest is constant
𝑦𝑥+𝑘 = 𝑦𝑥 ∘ 𝑘
In particular: 𝑦𝑥 = 𝑦0 ∘ 𝑥
(i.e. knowing the interest rate and survivorship function
for initial age 0 determines it for all initial ages) paying ck
Notation
PV(Life annuity on (𝑥 + 𝑘)) paying 𝑐𝑖
𝑎ሷ 𝑥 +𝑘 (𝑐)
at time 𝑖 and calculated wrt 𝑣 ∘ 𝑘
With constant interest rate, 𝑣 ∘ 𝑘 = 𝑣
35 𝑎ሷ 𝑥 +𝑘 𝑐 = 𝑎ሷ 𝑥+𝑘 (𝑐)
ሷ ∘ 𝑘, 𝑣 ∘ 𝑘)
𝑉𝑎𝑙𝑘 𝑘𝑪 = 𝑎(𝑐 (2.28)
Relation between 𝑦𝑥 for various values
of x cont’d
From (2.28) 𝑣
𝑘
𝑉𝑎𝑙𝑘 𝑐 = 𝑎ሷ 𝑥+𝑘 (𝑐 ∘ 𝑘, 𝑣 ∘ 𝑘)
𝑘
we can write 𝑉𝑎𝑙𝑘 𝑐 = 𝑎ሷ 𝑥 +𝑘 (𝑐 ∘ 𝑘)
37
𝑣(𝑘, 𝑘 + 𝑖)
Compare with 𝑎ሷ 60 14 = 3.33
𝜔−𝑥−1
𝑎ሷ 𝑥 +𝑘 𝑐 = 𝑐𝑖 𝑣 ∘ 𝑘(𝑖) 𝑖𝑝𝑥
Example 𝑖=0
39
𝑁
𝑉𝑎𝑙𝑛 𝑐; 𝑣 = 𝑐𝑘 𝑣(𝑛, 𝑘)
𝑘=0
𝑦𝑥
Example 𝑦𝑥 (𝑛, 𝑘)
40
Active learning
41
Assignment 4
42