Manual For SOA Exam MLC.

Chapter 2. Survival models.
Manual for SOA Exam MLC.

Chapter 2. Survival models.
Section 2.4. Expectation of life.
2009.
c Miguel A. Arcones. All rights reserved.
Extract from:
”Arcones’ Manual for SOA Exam MLC. Fall 2009 Edition”,
available at http://www.actexmadriver.com/
1/37
2009.
c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 2. Survival models. Section 2.4. Expectation of life.
Expectation of life of a newborn
Definition 1
◦
The life expectancy of a newborn is e 0 = E [X ].
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2009.
Definition 1
◦
◦
e 0 is also called the complete expectation of life at birth.
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2009.
Definition 1
◦
◦
e 0 is also called the complete expectation of life at birth.
Theorem 1
Let X be an age–at–death r.v. with density fX and survival
function SX . Then,
(i) Z ∞ Z ∞ Z ∞
◦
e0 = xfX (x)dx = SX (x)dx = t p0 dt.
0 0 0
(ii)
Z ∞ Z ∞ Z ∞
2 2
E [X ] = x fX (x)dx = 2xSX (x)dx = 2t · t p0 dt.
0 0 0
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2009.
Example 1
An actuary models the lifetime in years of a random selected
6 6
person as a r.v. X with survival function SX (x) = 9090−x
6 , for
◦
0 < x < 90. Find e 0 and Var(X ).
5/37
2009.
Example 1
6 6
6 , for
◦
0 < x < 90. Find e 0 and Var(X ).
Solution: (using the density of X ) (i) The density of X is
d d 906 − x 6 6x 5
fX (x) = − SX (x) = − = , 0 < x < 90.
dx dx 906 906
∞ 90
6x 5 6x 7 90 (6)(90)
Z Z
◦
e0 = xfX (x)dx = x 6 dx = =
0 0 90 (7)906 0 7
=77.142857,
90 5 6x 8 90 (3)(90)2
Z
2 2 6x
E [X ] = x dx = = = 6075,
0 906 (8)906 0 4
Var(X ) = E [X 2 ] − (E [X ])2 = 6075 − (77.142857)2 = 1123.9796139.
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2009.
Example 1
6 6
6 , for
◦
0 < x < 90. Find e 0 and Var(X ).
(ii) (using the survival function of X ) We have that
∞ 90
906 − x 6 x 7 90
Z Z
◦
e0 = SX (x)dx = dx = x −
0 0 906 (7)906 0
907(6)(90)
=90 − = = 77.142857,
(7)906 7
Z ∞ Z 90 90
2 906 − x 6 2 x8
E [X ] = 2xSX (x)dx = 2x dx = x −
0 0 906 (4)906
0
908 (3)(90)2
=902 − = = 6075,
(4)906 4
Var(X ) = E [X 2 ] − (E [X ])2 = 6075 − (77.142857)2
=1123.9796139. 7/37
2009.
expected future lifetime of (x)

Definition 2
The expected future lifetime at age x is
◦
e x = E [T (x)].
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2009.

Definition 2
◦
e x = E [T (x)].
◦
e x is also called the complete expectation of a life at age x.
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2009.

Definition 2
◦
e x = E [T (x)].
◦
e x is also called the complete expectation of a life at age x.
Theorem 2
(i)
R∞
◦ E [(X − x)I (X > x)] x (t − x)fX (t)dt
e x = E [X −x|X > x] = = .
P{X > x} P{X > x}
(ii) Z ∞ Z ∞
◦ SX (x + t)
ex = t px dt = dt.
0 0 SX (x)
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
(i) The density of T (x).
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
(i) The density of T (x).
Solution: (i) The density of X is
d d 906 − x 6 6x 5
fX (x) = − SX (x) = − = , 0 < x < 90.
dx dx 906 906
The density of T (x) is
6(x+t)5
fX (x + t) 906 6(x + t)5
fT (x) (t) = = 906 −x 6
= , 0 < t < 90 − x.
SX (x) 906 − x 6
906
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
◦
(ii) e x using the density of T (x).
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
◦
(ii) e x using the density of T (x).
Solution: (ii) By the change of variables s = x + t
∞ 90−x
6(x + t)5
Z Z
◦
ex = tfT (x) (t) dt = t dt
0 0 906 − x 6
90
6s 5 6s 7 xs 6 90
Z
= (s − x) 6 ds = −
x 90 − x 6 (7)(906 − x 6 ) 906 − x 6 x
6(90)7 x(90)6 6x 7 x7
= − − +
(7)(906 − x 6 ) 906 − x 6 (7)(906 − x 6 ) 906 − x 6
x 7 − 7(90)6 + 6(90)7
=
(7)(906 − x 6 )
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
(iii) The survival function of T (x).
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
(iii) The survival function of T (x).
Solution: (iii) The survival function of T (x) is
SX (x + t) 906 − (x + t)6
t px = = , 0 ≤ t ≤ 90 − x.
SX (x) 906 − x 6
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
◦
(iv) e x using the survival function of T (x).
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2009.
Example 2
6 6
6 , for
0 < x < 90. Find:
◦
(iv) e x using the survival function of T (x).
Solution: (iv)
∞ 90−x
906 − (x + t)6
Z Z
◦
ex = t px dt = dt
0 0 906 − x 6
906 t (x + t)7 90−x

= 6 −
90 − x 6 (7)(906 − x 6 ) 0
906 (90 − x) (90)7 x7
= − +
906 − x 6 (7)(906 − x 6 ) (7)(906 − x 6 )
x 7 − 7(90)6 + 6(90)7
=
(7)(906 − x 6 )
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2009.
n–th year temporary complete life expectancy
Definition 3
The n–th year temporary complete life expectancy is the
expected number of years lived between age x and age x + n by a
survivor aged x.
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2009.
Definition 3
survivor aged x.
The n–th year temporary complete life expectancy is denoted by
◦
e x:n| .
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2009.
Definition 3
survivor aged x.
The n–th year temporary complete life expectancy is denoted by
◦
e x:n| .
Theorem 3
◦
(i) e x:n| = E [min(T (x), n)].
◦ Rn
(ii) e x:n| = 0 t px dt.
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2009.
Example 3
6 6
6 , for
◦
0 < x < 90. Find e x:n| , for 0 < x < 90.
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2009.
Example 3
6 6
6 , for
◦
0 < x < 90. Find e x:n| , for 0 < x < 90.
Solution: For 0 ≤ x, t and x + t < 90
s(x + t) 906 − (x + t)6
t px = = ;
s(x) 906 − x 6
For 0 ≤ x, t and x + t > 90, t px = 0. If 0 < x < 90 − n,
Z n Z n 6
◦ 90 − (x + t)6 (7)(906 )n + x 7 − (x + n)7
e x:n| = p
t x dt = 6 6
dt =
0 0 90 − x (7)(906 − x 6 )
If 90 − n < x < 90,
n 90−x
906 − (x + t)6
Z Z
◦
e x:n| = t px dt = dt
0 0 906 − x 6
(7)(906 )(90 − x) + x 7 − (90)7
=
(7)(906 − x 6 )
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2009.
Theorem 4
◦ ◦ ◦
e x = e x:n| + n px e x+n
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2009.
Theorem 4
◦ ◦ ◦
e x = e x:n| + n px e x+n
Proof: We have that

Z ∞ Z n Z ∞
◦
ex = t px dt = t px dt + t px dt
0 0 n
Z ∞
◦
=e x:n| + n px · t−n px+n dt
n
Z ∞
◦ ◦ ◦
=e x:n| + n px · t px+n dt = e x:n| + n px e x+n
0
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2009.
Example 4
Assume that
(i) The expected future lifetime of a 40–year old is 45 years.
(ii) The expected future lifetime of a 50–year old is 36 years.
(iii) The probability that a 40–year old survives to age 50 is 0.98.
Find the expected number of years lived between age 40 and age
50 by a 40 year old.
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2009.
Example 4
Assume that
(i) The expected future lifetime of a 40–year old is 45 years.
(ii) The expected future lifetime of a 50–year old is 36 years.
(iii) The probability that a 40–year old survives to age 50 is 0.98.
Find the expected number of years lived between age 40 and age
50 by a 40 year old.
◦ ◦ ◦
Solution: Using that e x = e x:n| + n px e x+n , we get that
◦ ◦
45 = e 40:10| + (0.98)(36) and e 40:10| = 45 − (0.98)(36) = 9.72.
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2009.
central rate of failure
Definition 4
The central rate of failure on the interval from age x to age
x + t is
R x+t Rt
x SX (y )λX (y ) dy y px µx+y dy
t mx = R x+t = 0Rt .
x SX (y ) dy 0 y px dy
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2009.
central rate of failure
Definition 4
The central rate of failure on the interval from age x to age
x + t is
R x+t Rt
x SX (y )λX (y ) dy y px µx+y dy
t mx = R x+t = 0Rt .
x SX (y ) dy 0 y px dy
The central rate of failure on the interval is an average of the rate

of failure weighted using the survival function. We abbreviate
mx = 1 mx .
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2009.
Theorem 5
SX (x) − SX (x + t)
t mx = R x+t .
x SX (y ) dy
Proof.
We have that
Z x+t Z x+t
SX (y )λX (y ) dy = fX (y ) dy = SX (x) − SX (x + t).
x x
So,
R x+t
x SX (y )λX (y ) dy SX (x) − SX (x + t)
t mx = R x+t = R x+t .
x S X (y ) dy x SX (y ) dy
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2009.
Example 5
906 −x 6
For the survival function SX (x) = 906
, for 0 < x < 90. Find
t mx .
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2009.
Example 5
906 −x 6
, for 0 < x < 90. Find
t mx .
Solution: We have that
(x + t)6 − x 6
SX (x) − SX (x + t) = ,
906
Z x+t Z x+t 6
90 − y 6 (7)906 t − (x + t)6 + x 6
SX (y ) dy = dy = ,
x x 906 (7)906
SX (x) − SX (x + t) 7(x + t)6 − 7x 6
m
t x = x+t = .
(7)906 t − (x + t)6 + x 6
R
xSX (y ) dy
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2009.
median future lifetime
Definition 5
The median future lifetime of (x) is m(x) such that
P{T (x) < m(x)} ≤ 12 ≤ P{T (x) ≤ m(x)}.
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2009.
median future lifetime
Definition 5
The median future lifetime of (x) is m(x) such that
P{T (x) < m(x)} ≤ 12 ≤ P{T (x) ≤ m(x)}.
Usually, m(x) is the solution of
1 SX (x + m(x))
= P{T (x) > m(x)} = .
2 SX (x)
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2009.
Example 6
906 −x 6
, for 0 < x < 90. Find the
median future lifetime of (x).
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2009.
Example 6
906 −x 6
, for 0 < x < 90. Find the
median future lifetime of (x).
Solution: Let m(x) be the median future lifetime of (x). We have
that
1 SX (x + m(x)) 906 − (x + m(x))6
= P{T (x) > m(x)} = =
2 SX (x) 906 − x 6
1/6
906 +x 6
and m(x) = 2 − x.
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2009.

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Chapter 2. Survival models.

Manual for SOA Exam MLC.

Expectation of life of a newborn

Expectation of life of a newborn

Expectation of life of a newborn

expected future lifetime of (x)

expected future lifetime of (x)

expected future lifetime of (x)

n–th year temporary complete life expectancy

n–th year temporary complete life expectancy

n–th year temporary complete life expectancy

Proof: We have that

central rate of failure

central rate of failure

The central rate of failure on the interval is an average of the rate

median future lifetime

median future lifetime

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