Math 471 - Actuarial Theory I Section G1

Assignment 1
Assignment 1 is due on Wednesday, September 2, 3:00pm.
1. (7 marks) Given the survival function
(
1
100 x, 0 x 100,
S0 (x) = 10
0,
o.w.
(a) (2 marks) Verify that this survival function satisfies the criteria discussed in class.
Solution:
i. S0 (0) = 1, i.e., the probability that (0) will survive to age 0 is 1.
ii. S0 (100) = 0 and S0 (t) = 0 as t , i.e., no one will survive forever
1
iii. S00 (x) = 20
(100 x)1/2 0, for 0 x 100, is a non-increasing function of x,
i.e., the probability that (0) will survive to at least age x decreases as x increases.
(b) (1 mark) What is the implied limiting age ? Why?
Solution:
= 100,
since S0 (100) = 0 (and for any t < 100 S0 (t) > 0).
(c) (1 mark) Calculate the probability that (0) will die between ages 19 and 36.
Solution:
Pr(19 < T0 36) =

19|17 q0

= S0 (19) S0 (36) =

1
1
100 19
100 36 = 0.1.
10
10

(d) (1 mark) Calculate the probability that (20) will survive to at least age 50.
Solution:
S0 (50)
Pr(T2 0 > 30) = 30 p20 =
= 0.7906.
S0 (20)
(e) (2 marks) Explain the meaning of
Solution:
3|5 q20

3 p20

3|5 q20

and calculate its value.

8 p20 =

S0 (23) S0 (28)

= 0.0324,
S0 (20) S0 (20)

is the probability that (20) will die between ages 23 and 28.
2. (2 marks) Prove that
0| qx

+1| qx + +n1| qx =

n qx ,

and explain in words why it holds.

Solution:
0| qx

+1| qx + +n1| qx

=( 0 px 1 px ) + ( 1 px 2 px ) + + (
= 0 px

n px

=1

n px

n qx ,

n1 px

n px )

or
0| qx

+1| qx + +n1| qx

=( 1 qx 0 qx ) + ( 2 qx 1 qx ) + + ( n qx
= n qx 0 qx =

n1 qx )

n qx .

The i-th term of the LHS is the probability that (x) dies in year i (for i = 1, . . . , n), so
summing them up gives the probability that (x) dies in next n years which is RHS.
3. (6 marks) Given that px = 0.99, px+1 = 0.985, 3 px+1 = 0.95 and qx+3 = 0.02, calculate
(a) (1 mark) px+3 ,
Solution:
px+3 = 1 qx+3 = 0.98
(b) (1 mark) 2 px ,
Solution:
2 px

= px px+1 = 0.97515

(c) (1 mark) 2 px+1 ,

Solution:
2 px+1

3 px+1

px+3

= 0.96939

(d) (1 mark) 3 px ,
Solution:
3 px

= px 2 px+1 = 0.95969

(e) (1 mark) 1|2 qx ,

Solution:
1|2 qx

= px 3 px = 0.03031

(f) (1 mark) 2| qx .
Solution:
2| qx

2 px

3 px = 0.01546