ACSC/STAT 3720, Life Contingencies I

WINTER 2017
Toby Kenney
Formula Sheet

Notation
For any age, the notation [x] + s indicates current age x + s, and select at age x.

• t px probability that a life aged x survives for t years.

• t qx probability that a life aged x dies within t years.

• 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)

• i(p) Nominal interest rate compounded p times per year

• d Annual discount rate 1 − v
1
• d(m) Nominal discount rate compounded m times per year m(1 − v m )

• Ax Expected present value of $1 when a life of present age x dies

• Ax Expected present value of $1 at the end of the year in which a life of present age x dies
(m) 1
• Ax Expected present value of $1 at the end of the period m th of a year in which a life of
present age x dies
• 2 Ax Like Ax , but evaluated at twice the actual force of interest, or effective interest rate
(1 + i)2 − 1.

• 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

Formulae for Present Value of a Whole-Life Annuity-due

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

Relations between Values of Insurance and Annuities

Ax:n| = Ax + n px (1 + i)−n (1 − Ax+n )

1
Ax:n| = Ax − n px (1 + i)−n Ax+n = Ax:n| −n px (1 + i)−n
ax:n| = ax − n px (1 + i)−n ax+n Ax:n| = Ax + n px (1 + i)−n (1 − Ax+n )
A1x:n| = Ax − n px (1 + i)−n Ax+n = Ax:n| −n px (1 + i)−n
(m) (m)
ax:n| = ax − n px (1 + i)−n ax+n Ax:n| = A(m)
x + n px (1 + i)−n (1 − Ax+n )
(m) 1 (m) (m)
A x:n| = A(m)
x − n px (1 + i)−n Ax+n = Ax:n| −n px (1 + i)−n
(m) (m)
ax:n| = a(m)
x − n px (1 + i)−n ax+n

Policy Values

tV = (px+tt+1 V + qx+t S)(1 + i)−1 − P

d
t V = δt t V + Pt − (St − t V )µx+t
dt
where P is the premium payable at time t and S is the death benefit.

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 ).