Reserves at fractional durations or between premium dates

Section 8.4 of AM and Section 7.4.2 of AMLCR

LTAM 7.7 = May 2013 #9 hV + πh = vs h+sV spx+h + v bh+1 sqx+h
= vs h+sV (1 – sqx+h) + v bh+1 sqx+h by UDD
Above is an equation of values at time h. You can also set up an equation at time h+s as
in AM Exercise 8.11, (hV + πh)(1+i)s = h+sV spx+h + v1−s bh+1 sqx+h.
But the first official solution would start with h+sV = v1−s[1−spx+h+s h+1V + 1−sqx+h+s bh+1],
find h+1V by Fackler’s reserve accumulation formula (AM p. 251, Exercise 8.7),
h+1V = [(hV + πh)(1 + i) − qx+h bh+1]/px+h, and … This is too long.

LTAM 7.21 = Fall 2014 #14 Use sEx+k k+sV = 1Ex+k k+1V + vbk+1 (1 – s) qx+k
and sEx+k = vs spx+k = vs(1 – s×qx+k)
UDD: If you need to find τqx+t under UDD, where τ + t ≤ 1, use
tpx × τqx+t = t|τqx = τ×qx (note that there is no t), and tpx = 1 – tqx = 1 – t × qx.

Claim: Let k be a nonnegative integer and s ∈ (0, 1). Under UDD, we have following
linear interpolation formula,
sEx+k k+sV = (1 – s)( kV + πk) + s 1Ex+k k+1V.
Proof: sEx+k k+sV = 1Ex+k k+1V + vbk+1 s|1 − sqx+k
= 1Ex+k k+1V + vbk+1 (1 – s) qx+k by UDD
= 1Ex+k k+1V + (1 – s)(kV + πk − 1Ex+k k+1V) by reserve recursion
= s 1Ex+k k+1V + (1 – s)( kV + πk) Q.E.D.
Note: (kV + πk) is called (AM p. 235) the initial reserve for the policy year k + 1, and
k+1V the terminal reserve for the policy year k + 1. (kV is called the terminal reserve for
policy year k.) The term unearned premium can be used to describe (1 – s)πk.

Corollary: With E (endowment) being close to 1, we have the approximation formula,

k+sV ≈ s k+1V + (1 – s)( kV + πk).
or tV ≈ (t − 
t  ) t V + ( t  − t )( t V + πt  ) for t not an integer.
  

AM Exercise 8.12.a
Let t be a nonnegative number that is not an integer multiple of 1/m. Interpolate linearly
between (terminal) reserves and interpolate linearly between premium and 0,

( )
t  −t t − t   mtm  −t P(m)  mt 
t−   
V (m)
≈ × V (m)
+ × V (m)
+  × + m
× 0 
t 
t  − t   t  
t  − t   t    − 
 mt   mt 
m  
 − 
mt  mt 
 m m m m 
 mt 
= ( t  − t ) t V ( m ) + (t − t  ) t V ( m ) + (  m  − t ) P ( m )

LTAM 7.3 = Fall 2012 #17 UDD not assumed. Solve by recursion formula.
LTAM 7.37 = Spring 2017 #10 Thiele’s differential equation
LTAM 7.6 = Fall 2012 #4 This problem tests whether you know Thiele’s differential
equation in the form of (7.13) on page 211 of AMLCR. Here, Euler’s method is merely
Taylor’s expansion up to the first derivative term, g(9.6) ≈ g(9.8) + g'(9.8)×(9.6 – 9.8).
MLC Sample #306, #307