Professional Documents
Culture Documents
WINTER 2017
Toby Kenney
Formula Sheet
Notation
For any age, the notation [x] + s indicates current age x + s, and select at age x.
• u |t qx probability that a life aged x survives u years, then dies within the following t years.
• e̊x expected future lifetime for a life aged x.
• ex curtate expected future lifetime for a life aged x.
• e̊x:t| expected future lifetime for a life aged x with upper bound of t.
• i Effective annual interest rate
• v Annual discount factor (1 + i)−1
• δForce of interest log(1 + i)
• Ax:t| Expected present value of $1 at the end of the year in which a life of present age x dies,
or after t years, whichever comes sooner.
• A1x:t| Expected present value of $1 at the end of the year in which a life of present age x dies
provided this happens within t years.
• u|Ax Expected present value of $1 at the end of the year in which a life of present age x dies
provided this happens after at least u years.
• äx EPV of an annual annuity due with $1 payments lasting until a life aged x dies. (First
payment now)
1
• ax EPV of an immediate annual annuity with $1 payments lasting until a life aged x dies.
(First payment in 1 year’s time).
• äx:n| EPV of an annual annuity due with $1 payments lasting until a life aged x dies or for
a maximum of n payments if the life survives long enough. (First payment now)
• än| EPV of an annual annuity due with $1 payments lasting for n payments. (First payment
now)
1
• äm
x EPV of an annuity due with payments m, m times per year lasting until a life aged x
dies. (First payment now)
• ax EPV of an annuity due with continuous payments at a rate of $1 per year lasting until a
life aged x dies.
Formulae
Relations between probabilities
t px +t qx = 1
u |t qx =u px −u+t px
u+t px =u pxt px+u
1 d
µx = − (x p0 )
x p0 dx
fx (t) =t px µx+t
Z t
t qx = s px µx+s ds
0
Annuity-Certain
1 − (1 + i)−n
an|i =
i
1 − (1 + i)−n
än|i =
d
(1 + i)n − 1
sn|i =
i
1 − Ax
äx =
d
∞
X
äx = v k k px
k=0
X∞
äx = äk+1| k |qx
k=0
2
Formulae for Present Value of a Whole-Life Continuous Annuity
1 − Ax
ax =
Z δ
∞
ax = e−δt t px
Zt=0
∞
ax = at| k |qx
t=0
Policy Values
Approximations
Uniform Distribution of Deaths (UDD)
Continous case:
i
Ax = Ax
δ
Discrete case:
i
Am
x = Ax
im
Woolhouse’s formula
Continuous case:
1 1
ax = äx − − (δ + µx )
2 12
Discrete case:
m − 1 m2 − 1
ä(m)
x = äx − − (δ + µx )
2m 12m2
We often use the approximation µx = 21 (qx−1 + qx ).