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Week 3:
Survival Models and the Life Table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
1 Survival models
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
1 Survival models
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
Survival Models
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
Survival Function
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
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x 0
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
Pr (A and B)
Pr (A)
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
Given that life is aged x, the probability that the life will
survive to age z (z > x) is:
Pr (X > z|X > x) =
=
=
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
x
Example 3.1: If s (x) = 1 100
for 0 x < 100. Determine the
probability that a life aged 20 will survive to age 65.
Solution:
The required probability is
1
s (65)
=
s (20)
1
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65
100
20
100
= 0.4375
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
The probability that a life aged x will die between the ages of y
and z (z > y > x) is:
Pr (y < X z|X > x) =
=
=
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
Death probabilities:
t qx
t0
In particular, when t = 1
qx
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
In particular, when t = 1
px
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
t qx
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= s(x)
x+t p0
x p0
=1
s(x + t)
s(x)
s(x + t)
s(x)
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
t
+
u
t|u x
s(x + t) s(x + t + u)
s (x)
s(x + t)
s(x + t + u)
1
= 1
s (x)
s (x)
= t+u qx t qx
=
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t px
t+u px
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
x 2
100
Solution:
The required probability is
5 p35
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1
s (40)
=
=
s (35)
1
40 2
100
35 2
100
= 0.85207
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
Hazard Rate
A key feature of survival models is the hazard rate or failure
rate function
In actuarial studies and demography, for a survival function,
the hazard rate or failure rate is referred to as the force of
mortality
Definition:
(x) =
=
=
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d
dx
s (x)
s (x)
s 0 (x)
s (x)
fX (x)
1 FX (x)
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
By definition (y ) =
d
dy
s(y )
s(y )
d
= dy
ln s (y ), so that
(y ) dy = d ln s (y )
Integrating from x to x + t we have
Z x+t
Z x+t
s (x + t)
(y ) dy =
d ln s (y ) = ln
s (x)
x
x
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
Z
(y ) dy
= exp
x
t px
and
Z
(y ) dy
s(x) = exp
0
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x+t
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
(y ) dy
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
Survival models
R
0
(x) s(x)dx.
Solution:
(x) s(x) = fX (x) is the probability density function, so the
integral is equal to 1
This is the probability that a new-born will die between the
ages of 0 and
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
1 Survival models
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
P
Tx =
Lx+t
t=0
Tx
lx
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
Proceed as follows:
dx
= qx lx
lx+1 = lx dx
lx + lx+1
Lx =
2
Tx = Tx+1 + Lx
Tx
ex =
lx
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
=
=
=
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s (x + t)
s (x)
l0 s (x + t)
l0 s (x)
lx+t
lx
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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the probability that a life aged 20 will die within the next 10
years
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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l40
966752
=
= . 974 81
l20
991729
l20 l30
l20
991729 978901
=
991729
= 1. 293 5 102
=
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
Laws of Mortality
Simple models have been proposed for the hazard rate for human
lives - referred to as laws of mortality
De Moivres Law
Gompertz Law
Makehams Law
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
x
,
0x <
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s 0 (x)
1
=
,
s (x)
x
0x <
Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
Denote actual values for s(x) from the life table by s a (x)
Over the age range xl to xu select values of B and c that
minimize the function
2
xu
X
B
a
x
(c 1)
s (x) exp
ln c
x=x
l
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
Summary
This week
Survival models, including survival function, hazard rate, and
international actuarial notation
The life table, including each variable in the life table, how to
construct and interpret a life table, and three laws of mortality
Read Chapter 3 of the textbook
Do exercises in Chapter 3
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Introduction to Actuarial Studies Week 3: Survival Models and the Life Table
The life table
Next week
Attend tutorials, prepare to discuss exercises from Chapter 3
and Tutorial Exercises Week 4
Read Chapter 4 (just to get the main ideas and identify new
topics)
Basic financial mathematics
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