Actuarial Mathematics - Answers to suggested problems 1

Actuarial Mathematics: Chapter 3 – Suggested

Problems and Solutions.
Suggested Problems:
1(do first row last), 5, 6, 7, 9, 12, 18abc, 20, 28, 30, 36, 39

Suggested Solutions:
1. Except for the first row, these are pretty straightforward using the table in
this manual at the beginning of Section 3.2.4. The first row is worked below.
Rx
s(x) = e− 0
tan tdt

The integral can be written as

Z x Z x
sin t −du
dt = = − ln |u|x0
0 cos t 0 u
(where u = cos t and du = − sin t)

= − ln(cos x) + ln(cos 0) = − ln(cos x).

We can drop the absolute values here because we are told everything is between 0
and π2 . Now
s(x) = eln(cos x) = cos x,
⇒ F (x) = 1 − cos x, f (x) = −s0 (x) = sin x.

100−x
5. Note that s(x) = 100
, DeMoivre’s Law.
1
(A) µ(x) = −s0 (x)/s(x) = 100−x
x
(B) F (x) = 1 − s(x) = 100
1
(C) f (x) = −s0 (x) = 100
90 60
(D) s(10) − s(40) = 100
− 100
= 0.3.
2 ARCH Solutions - Course 3

6.
s(40+t) 60−t
(A) t p40 = s(40)
= 60
, for DeMoivre’s Law, you should memorize that
ω−x−t
t px = ω−x
.

(B)
− dtd (t p40 ) 1
= .
t p40 60 − t
1
For DeMoivre, µx (t) = ω−x−t
.

(C) = − dtd (t p40 ) = 60

1
, DeMoivre’s law assumes a uniform distribution – death is
equally likely at any time from x to ω.

7. See important note at the end of this problem.

(A)
µ ¶0.5 µ ¶0.5
s(36) 100 − 36 100 100 − 36 8
= · = =
s(19) 100 100 − 19 100 − 19 9
³ ´0.5
s(51) 100−51 1
(B) 1 − s(36)
=1− 100−36
= 8
³ ´
s(51) s(64) 7 1
(C) 15|13 q36 = 15 p36 13 q51 = s(36)
1− s(51)
= 8
· 7
= 81 .

(D) Note that

µ ¶1 µ ¶− 1
100 − x 2 1 100 − x
0
2
s(x) = =⇒ s (x) = − .
100 200 100
µ ¶
−s0 (x) 1 1
µ(x) = = ,
s(x) 2 100 − x
1
⇒ µ(36) = .
128
(E) According to the survival function, (36) can survive at most 64 more years,
so Z 64 Z 64
◦ s(36 + t)
e36 = t p36 dt = dt
0 0 s(36)
µ ¶1
64 − t 2
s(36 + t) = , s(36) = 0.8
100
· ¸64
◦ 1 Z 64 1 1 −2 3 1 2 3 128
⇒e36 = (64 − t) 2 dt = (64 − t) 2 = 8 =
8 0 8 3 0 83 3
Actuarial Mathematics - Answers to suggested problems 3

Important Note: This is a Modified DeMoivre’s Law with

µ ¶α
ω−x
s(x) = ,
ω
instead of the DeMoivre we are used to (α = 1). For Modified DeMoivre,
α ◦ ω−x
µ(x) = , ex = .
ω−x α+1

9. This is constant force of mortality. t px = e−0.001t for any x.

2|2 q20 = 2 p20 2 q22 = e−0.002 (1 − e−0.002 ) = 0.001994

12.
`5 98495
(A) 5 q0 =1− `0
=1− 100000
= 0.01505.
= 1 − ``105 = 1 − 98495
5 q5
98347
= 0.001503. Fewer die in the second 5 years of life
than in the first 5 years of life.

(B) 55|5 q25 = number dying between

`25
80 and 85 = `80 −`85
`25
= 43180−27960
97110
= 0.1567

18.
R∞
(A) s(x) = x f (x) = e−cx . This is constant force with force of mortality µ = c,
◦ 1
so ex = µ
= 1c .

(B) Z ∞ Z ∞
³ ◦ ´2 ³ ◦ ´2
Var[T ] = 2 t · t px dt − ex =2 te−ct dt − ex
0 0
For the integral, we can use integration by parts with

u=t du = dt
v = − 1c e−ct dv = e−ct dv

Which gives that the integral equals

· ¸∞
−t −ct 2 Z ∞ −ct 2 2
2 e + e dt = 0 − 2 [e−ct ]∞
0 = 2
c 0 c 0 c c
2 1 1
⇒ Var[T ] = 2
− 2 = 2.
c c c
1
For CFM, Var[T ] = µ2
.
4 ARCH Solutions - Course 3

(C) Find t such that t px = 0.5

ln 2
⇒ e−ct = 0.5 ⇒ t=
c

1
20. fx (t) = FT0 (x) (t) = 100−x
, this is DeMoivre’s Law with ω = 100
◦ ω−x 100−x
(A) ex = 2
= 2
since this is DeMoivre’s law.
You could also work out
Z 100−x Z 100−x
◦ 100 − x − t
ex = t px dt = dt
0 0 100 − x

(B) Z ∞
◦2
Var[T ] = 2 t · t px dt− ex
0
The integral is
Z ∞ Z 100−x
100 − x − t 2
2 t· dt = (100 − x)t − t2 dt
0 100 − x 100 − x 0
A polynomial!
" #100−x " #
2 100 − x 2 t3 2 (100 − x)3 (100 − x)3 1
= t − = − = (100−x)2 .
100 − x 2 3 0
100 − x 2 3 3

(100 − x)2 (100 − x)2 (100 − x)2

⇒ Var[T ] =− =
3 4 12
To avoid doing this calculation in the future, remember that, for
DeMoivre’s Law,
(ω − x)2
Var[T ] =
12

28. For all three assumptions, we will use the fact that
`66 75520
q65 = 1 − p65 = 1 − =1− = 0.02058.
`65 77107
(A) Uniform assumption: 0.5 qx = (0.5)qx = 0.01029, which implies that
0.5 p65 = 0.98971.

(B) Constant Force:

(0.5)
0.5 p65 = p65 = (0.97942)0.5 = 0.98966
Actuarial Mathematics - Answers to suggested problems 5

(C) Hyperbolic assumption (Balducci)

p65 0.97942
0.5 p65 = = = 0.98960.
1 − (1 − 0.5)q65 1 − 0.01029

Balducci is a pain!

30. For both of these, the quantity we are seeking is

0.5 p70 · 1 q70.5 = 0.5 p70 (0.5 q70.5 + 0.5 p70.5 · 0.5 q71 )

(A)
0.5 p70 = 1 − 0.5 q70 = 1 − (0.5)q70 = 0.98
(1 − 0.5)q70 0.02
0.5 q70.5 = = = 0.0204, 0.5 p70.5 = 0.9796
1 − (0.5)q70 0.98

0.5 q71 = (0.5)q71 = 0.025

⇒ 0.5 p70 (0.5 q70.5 + 0.5 p70.5 · 0.5 q71 ) = 0.98[0.0204 + (0.9796)(0.025)] = 0.04399

(B)
p70 0.96
0.5 p70 = = = 0.9796
1 − (1 − 0.5)q70 0.98

0.5 q70.5 = (1 − 0.5)q70 = 0.02, 0.5 p70.5 = 0.98

(0.5)q71 0.025
0.5 q71 = = = 0.02564
1 − (1 − 0.5)q71 0.975
⇒ 0.5 p70 (0.5 q70.5 + 0.5 p70.5 · 0.5 q71 ) = 0.9796[0.02 + (0.98)(0.02564)] = 0.04421

36.

(A)
`[32]+3 `35 9887.6
2 q[32]+1 =1− =1− =1− = 0.000879.
`[32]+1 `[32]+1 9896.3
The book’s answer is different and seems way too big. Same for part B.

(B)
`34 9892.5
2 p[31]+1 = = = 0.999182
`[31]+1 9900.6
6 ARCH Solutions - Course 3

39. This question is so ‘exam-like’ that you might want to work it twice. Let px
refer to standard mortality and p∗x refer to standard mortality plus the extra risk.
R1
0.994 = p50 = e− 0
µx (t) dt

We need a function for the extra mortality to add to calculate p∗x . The linear
function that equals 0.03 at t = 0 and 0.0 at t = 1 is µ∗x (t) = 0.03(1 − t), so
R1 µ R1 ¶µ R1 ¶ µ R1 ¶
− [µx (t)+(0.03)(1−t)] dt − µx (t) dt − (0.03)(1−t) dt − (0.03)(1−t) dt
p∗50 =e 0 = e 0 e 0 = (0.994) e 0

The integral in the rightmost expression is

" #1
t2
0.03 t − = 0.015.
2 0
³ ´
⇒ p∗50 = (0.994) e−0.015 = 0.9792