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CHAPTER 1
() = 1 () = ( > )
[ ] = [0 + |0 > ]
(+)0 ()
() = 0
0 ()
0 ( + )
() =
0 ()
0 ( + ) = ()0 ()
( + ) = ()+ ()
0 () = 1
lim () = 0
lim () = 0
= [ < + ]
= () ( + )
Identities:
1
= lim
[0 + |0 > ]
0+
+ = 1
| = +
= +
+ = +
1
=
( 0 )
1.
2.
3.
4.
5.
= +
() = +
6.
7.
{ 0 + }
CHAPTER 2
FORCE OF MORTALITY
+1
=
0
= 1, = 0
8.
1
() =
0 ()
0 + +1
( + )
0 ( + ) ( + ) 0
1
=
()
()
+ =
+
()
+ =
()
= ln 0 ()
Some Results:
0 () = { 0 }
() =
{ 0 + }
Central Moments
()
= [ ] = 0
= 0 +
[2 ] = 0 2 +
() = (1 +
)
+
Trapezoidal Rule
1
() (() + ())
2
= 2 0
Var[ ] = [2 ] ( )2
= 2 0 (0 )2
Curtate Future Lifetime
P[ = ] = [ + 1]
| = +
()
= [ ] = =1
= =0 P[ = ]
[2 ] = 2
=1
= =0 2 ( +1 )
Var[ ] = [2 ] ([ ])2
2
= 2
=1 ( )
= 1 ( )1
+ = 1 ( )
+ = ( )
1+
2.
3.
4.
Balducci
1
0 <
={
<
:
= [ ] = 0
0 (+)
0 ()
1
1
0 (+1)
+1
1(1)
Some Identities:
1.
1(1)
CHAPTER 3
2.
+ =
Life Tables
3.
4.
1+
+ =
+
=
+1 =
= ( + )1
( + +1 )
E[ ] = = +
Let = +1 =
0 () 0 ()
=
=
0 ()
0 ()
UDD1: = s , 0 < 1
UDD2: = +
[ ] =
= (1 )
=
+
+ =
3.
4.
= +
+ =
1
0 +1 +
1
0 +
=
1
0 +1 +
5.
1+
Constant Force
= =
()
= ( ) =
Some Results:
1.
(1(1) )2
+ +1
+1
0 +
= 0 + + + +
= 0 +
0 + + +
=
n =
() = 0 + +
= 0 +
() = lim
() =
1
(1)
1(1)
5.
Some Results:
1.
2.
1(1)
0 + +
1
0 + +
1
0 +
1
= [ | < 1]
Some identities:
()
1. =
2.
: =
3.
4.
5.
() = ()
2
= () +[1 ()]+1
+
+1
= 1 ( )
[]+ =
a.
b.
[]+ =
2 ()
[] =
Term Insurance
Z={
0
>
[]+
[]+
[]+
: = [] = +
0
[]+
=0 +
: =E[ 2 ] = 0 2 +
[] = 2: (: )2
2
CHAPTER 4
Assumptions
1
1. =
1+
2. = (1 + )
() = ((1 + ) 1)
3.
()
( )2
= [] = +
0
Discrete Case:
+1 1
={
0
+1 =
: = [] = 1
=0
|
+1
= 1
=0
+
2
2(+1) =
: = 1
=0
|
1
= 2(+1) +
=0 +
=0
[] = 2: (: )2
=E[ 2 ] = 0 2 +
Mth-ly
1
()+
[] = 2 ( )2
1
()
For constant force of mortality and force of Z={
()
interest ,
0
+1
= [] = 0 =
()
+
: = [] = 1
=0 | 1
Discrete Case:
2(+1)
2 ()
= +1
: = 1
1
=0
|
+1
= [] =
=0
|
() 2
2 ()
[] = : ( : )
= +1
2
=0
2(+1)
=
=0
|
2(+1)
= =0
+
[] = 2 ( )2
M-thly
1
=
1
()
P[ = ] = [ + ]
()
=
()
2 ()
=0
= + 1
1
|
+1
1
|
2(+1)
=
=0
ENDOWMENT INSURANCE
Pure Endowment
0
Z={
>
: = [] = =
Continuous
Z={
>
: = + +
0
2
Var[Z]= : (:
1 ={
0
>
)2
0
2 ={
>
3 = 1 + 2
[3 ] = : + :
[3 ] = [1 ] + [2 ] + 2[1 , 2 ]
2[1 , 2 ] = 2[1 ][2 ]
Recursions
1.
= + +1
()
2.
()
1
+
= 1 + 1
(D : ) = 0 ( ) +
Annually increasing whole life insurance
Z=( + 1) +1
+1
() =
=0( + 1)
|
Annually decreasing n-year insurance
( ) +1 = 0,1, , 1
Z={
0
= , + 1,
(
() : =1
) +1 |
=0
Some identities:
1. () : =1
=0 ( ) | :1
Deferred Insurance
>
Z={
0
= + = : +
|
Some identities:
1. | : = +:
2.
+ ()+1
,
:(+1)
3.
= :+
-:
1
3. : = =0 | :1
4. =
=0 | :1
4.
5. = : + |
6. : = +
5.
| :
2.
, ()
Relationship of
Under UDD
()
= ()
: : +
APV=(I)x=0 + 1 +
= 1
=0 :
() :
=
[v + +1
]
:(+1)
x=0,1,2,,y-1
() :
= (
)v + ()+1
:(+1)
() = [v + +1 ]+ ()+1
)
= (
() :0
=0
CHAPTER 5
CONTINUOUS LIFE ANNUITIES
=
() =
=
+1
( () )x=0
+
Z=
)x= + = |
(
0
0
,0<<
= [] = +
=0
+1
Z=
ln(1)
)
( )2
1
+
: = 0 + +
= 0
1:
: (: )2
() =
2
2
= +
= :
[] =
+
2
2
() = (
) +
2
( | )2 = 2 (+ 2+
Y={
>
+ +
: =0
= +
= [ + ] 1
+1
= 1 +
=0
+1
(
)=
+1
Y=
+1
= [
+1 ]
= =0
+1 +
=
=0
+1
If g(k)=
+1 , () =
() = +1
Summation by parts:
= ()() = [g(n + 1)f(n + 1)
g(m)f(m)] nk=m f(k + 1)g(k)
={
:| =
2
( )
:| =
() =
1 :| :
2
(1+)2 [ 2:| (:
| ) ]+
| :
2(1+):
+1 0
={
1
:
= =0
+1 + +
1
:
= =0
()
Some identities:
1. :
= 1 + +1:(+1)
2. :
=
1:
() =
0
0
={
|
+1|
= + = :
=
=
={
+1|
=
:|
|
+1| +
:| = | +
:| = | + :
Note: = [
]=
1(1+)
=
()
= ( )
=
=0 =
Var(Y)=
2 ()
2
(() )
=(1 + ) +1
() = [( )]
Equivalence Principle: [] = 0
L= PV Benefit PV Premiums Paid
( ) =
1 +( +1)/
2
() = [ ( ) ](1 + )2
()
()
= ,
( () )2
3. () = 1()
|
4.
()
1| 1
()
()
Increasing Annuities
Annuity-due where payment increases with
time
( ) =
=0 ( + 1)
Annuity is payable for a maximum of n
payments
( ):| = 1
=0 ( + 1)
= =1
+ = =1
1
= +1
+1
If =
Some identities:
()
()
1. 1 = () +
()
()
2. () = 1()
)
|
| (
2
:
(:
)
Benefit Premiums
+ 1
=0
: |
=
CHAPTER 6
1 (1 + ) :| :
: = ( + ): (1 )
=
|
Some Identities:
= 1 + +1
1
=
1 = +
=
)
= (
:|
) =
(
0
Premium Formulae:
1. Whole life insurance
( ) =
|
( :| ) = :
|
:
3. n-year endowment
(:| ) = :|
|
:
( :| )
:|
:
|
:|
() =
:
|
:| (:| )2
Some identities:
(n-year endowment)
(:| )
1. ( ) = 1
:|
1:|
2. (:| ) =
3. (: ) = : + :|
1
+
() = 1 ( ln [
])
<
()
1. Whole life:
()
:| =
2. n-year term:
( )2
() =
( )2
Premium Formulae:
:
|
:| =
|
:
()
:| = :|
=
:|
:
|
:
|
:
|
1. ( ) = =
2. ( :| )
= ( ) {| ( < ) +
|
( )}
Mortality and Survival Functions
:
|
()
:|
:
|
() (:| ) =
()
:|
()
( ) =
()
:|
()
:| =
() ()
(1 + ) = (1 +
:|
()
)
()
() ()
= (1
:
|
()
:|
(1 )
()
Loss Formula
|
1. Whole Life: =
2. N-year term:
< ) {| ( < )
+
| ( )}
De Moivre: ( )1
Gompertz: x
Makehams: +
Weibull:
Paretos
( + )1
De Moivre:
De Moivre:
1
1
() =
+ =
+
( ) =
1
+ =
+
Benefit Reserve = (APV of whole life insurance
from age x+t)-(APV of future benefit premium
payable after x+t at an annual rate of ( ))
Trivial case: 0 ( ) = 0
Variance:
[ 2+ (+ )2]
= ( ) = 0
( ) 2
]
[ 2 ( )2]
() = Pr[ | > ]
(
)
+
(
))
+
1 ()
1
1 + ( )
( ln(
)
+ ( )
(1 ())( + ( ))
1 + ( )
() = 1 + ( ln(
)
)
(
1
1 + ( )
( ln(
)
( + ( )) +
+ ( )
Prospective Method:
1. Whole Life Insurance
() =
( )
2.
3.
= + ( )+
)
(:|
4.
5.
AMAT 172
] [ | > ]
1 ( ln(
6.
7.
={
+:
( :| )+:
|
| , <
1, >
h-payment years, whole life insurance
( )
( )
( ) 2
( ) 2
]
Var[ | > ] = [1 +
:
|
= : (Term)
3. n-year endowment
:|
UDD Assumptions
()
:|
() ( :| ) =
= [1 +
Independent age:
= ( < ) + ( )
{| ( < ) +
| ( )}
:|
Premium Formulae
Percentile Premiums
1.
2.
3.
Var[ | > ] = [1 +
()
:
|
:| =
= {| ( < ) +
| ( )}
()
= ()
:|
5. h-payment years, n-year term
:|
()
:| =
()
:|
|
:
)
{| ( < )
+ |
( )}
3. n-year endowment
< )
+ (
()
= +1
+1
3. n-year endowment: :| =
Discrete Case
3. :| + :| = 1
3. N-year endowment:
= + ( )+:
| ,
) = {
,
<<
(:|
+:|
1,
=
n-year pure endowment
( ) +:|
, <
) = {+:|
:|
(:|
1, =
whole life annuity
,
) = { |+ ( | )+:|
( |
+ ,
>
(:|
2.
(:|
(+:|
)
3.
Set s=0
Retrospective Formula:
) = +
(:|
+ + +
)
:|
(:|
(:|
+:|
)
)
0 (:|
=0
, where
= (:|
) :|
:|
= +
:|
,
=
)
(:|
= (:|
)
:|
Identities:
1
= ( ) +
) = (:|
):|
(:|
+
(
)
=
1
( )
( )
= {
+ ,
5.
h-payment years, n-year endowment
+:|
:|
+:|
, < <
= {
+:|
<
,
:|
1, =
6.
whole life annuity
) ( | ) +:|
, <
) = { | +
( |
+ ,
Premium-difference formula
= (+:|
):|
+:|
:|
Paid-up insurance
:|
) +:|
= (1
:|
+:|
Retrospective formula
= +
:|
+:|
+ + +:|
:|
:|
Where
(:|
:|
:|
) = :|
:|
:|
+
+ +
+
= 1
1
= +
=0
=0
= + + ++ + + +
0
= 0, 1
= +1 , =
= , + 1
In general,
0,
1
=
= { +1 ,
,
+ 1
0,
1
=
= { +1 ,
,
+ 1
E[ | ] = +1+
Var[ | ] = (+1)2+ +
E[ ] = (+1+ )
Var[ ] =
(+1+ +1)2 + + (+1)2 + +
= +1
=0
= ++1 +1 |+ + +
=
= { (+1 ) ,
+ ( +1 ), + 1
[ | ] = +1+ + +1 + +
=0
Var[ | ] = [2 | ]
= [(+1 +1 )]2 + +
[ | ] = 0,
Var [ | ]=Var [ | ] +
Lemma:
Cov[ , | ] = 0, gh<j
2.
=0
Time h:
= [ | ]
:|
= 1
Setting j=0,
:|
(:|
)+
:|
= :|
+ :|
0,
= 1
:|
= +
:|
( )
(:|
)
= [ | ]
= + - +
Var [ | ] = (1 + )2 [ 2+ (+ )2 ]
(, + 1)
=0
= + 0
0
<
= {
+
=0
0
<
= {+1
+
+
=0
=+
Hatterndorf Theorem
Var[ | ] =
2()
a.
[ | ]
=
2()
2
b.
=
+ {[(+1 +1 ] + + }
2()
2
c. +1
{[(
+1
=
+
+1 ] + + } +
2 + [+ | + ]
Multiple Life Functions
( +1 )
, <
=0
Recursion of loss
= +v +1
Recursion of reserve
= +1+ + + +1
Allocation of the Risk
= + ( )
< , = + +1
= , = +1
h> , = 0