1 Interest Theory

A(t) is the amount function. a(t) is the accumulation function. a(t) =

, d =
i
i + 1
= 1 ,
1
1 +i
= 1 d = , i = d, 1 = (1 d)(1 +i).
i
(m)
is the nominal rate of interest compounded m times a year. d
(m)
is the nominal
rate of discount compounded m times a year.
1 +i =
_
1 +
i
(m)
m
_
m
= (1 d)
1
=
_
1
d
(m)
m
_
m
.
The force of interest is

t
=
d
dt
ln(v
t
) =
d
dt
ln a(t) =
a

(t)
a(t)
=
d
dt
ln A(t) =
A

(t)
A(t)
.
v
t
= e

R
t
0

s
ds
, a(t) = e
R
t
0

s
ds
.
Annuities
The cashow, present and future values of an annuitydue with level payments of one
are:
Contributions 1 1 1 1 0
Time 0 1 2 n 1 n
a
n|i
=
1
n
d
and s
n|i
=
(1 +i)
n
1
d
.
The cashow, present and future values of an annuityimmediate with level payments
of one:
Contributions 0 1 1 1
Time 0 1 2 n
1
a
n|i
=
1
n
i
and s
n|i
=
(1 +i)
n
1
i
.
The cashow and present value of an perpetuitydue with level payments of one are:
Contributions 1 1 1
Time 0 1 2
a
|i
=
1
d
.
The cashow and present value of a perpetuityimmediate with level payments of one
are:
Contributions 0 1 1
Time 0 1 2
a
|i
=
1
i
.
The cashow and present value of a geometric annuitydue with rst payment of one
are:
Payments 1 1 +r (1 +r)
2
(1 +r)
n1
Time 0 1 2 n 1
and
(G a)
n|i,r
= a
n|
ir
1+r
.
The cashow and present value of a geometric annuityimmediate with rst payment
of one are:
Payments 1 1 +r (1 +r)
2
(1 +r)
n1
Time 1 2 3 n
and
(Ga)
n|i,r
=
1
1 +r
a
n|
ir
1+r
.
The cashow and present value of a geometric perpetuitydue with rst payment of
one are:
Payments 1 1 +r (1 +r)
2
(1 +r)
n1

Time 0 1 2 n
and
(G a)
|i,r
=
_
1+i
ir
if i > r,
if i r.
The cashow and present value of a geometric perpetuityimmediate with rst pay-
ment of one are:
2
Payments 1 1 +r (1 +r)
2
(1 +r)
n1

Time 1 2 3 n
and
(Ga)

|i,r
=
_
1
ir
if i > r
if i r.
The cashow, present and future values of a due increasing annuity with rst payment
of one are:
Payments 1 2 3 n
Time 0 1 2 n 1
(I a)
n|i
=
a
n|i
n
n
d
and (I s)
n|i
=
s
n|i
n
d
.
The cashow, present and future values of an immediate increasing annuity with rst
payment of one are:
Payments 1 2 3 n
Time 1 2 3 n
(Ia)
n|i
=
a
n|i
n
n
i
and (Is)
n|i
=
s
n|i
n
i
.
The cashow and present value of an increasing due perpetuity with rst payment of
one are:
Payments 1 2 3
Time 0 1 2
and (I a)
|i
=
1
d
2
.
The cashow and present value of an increasing immediate perpetuity with rst
payment of one are:
Payments 1 2 3
Time 1 2 3
and (Ia)
|i
=
1
id
.
The cashow, present and future values of a decreasing due annuity with rst payment
of one are:
Payments n n 1 n 2 1
Time 0 1 2 n 1
(D a)
n|i
=
n a
n|i
d
and (D s)
n|i
=
n(1 +i)
n
s
n|i
d
.
The cashow, present and future values of a decreasing immediate annuity with rst
payment of one are:
3
Payments n n 1 n 2 1
Time 1 2 3 n
(Da)
n|i
=
n a
n|i
i
and (Ds)
n|i
=
n(1 +i)
n
s
n|i
i
.
The cashow, present and future values of a due annuity paid m times a year are
Contributions
1
m
1
m
1
m

1
m
1
m

1
m
0
Time (in years) 0
1
m
2
m

m
m
m+1
m

nm1
m
nm
m
a
(m)
n|i
=
1
n
d
(m)
and s
(m)
n|i
=
(1 +i)
n
1
d
(m)
.
The cashow, present and future values of an immediate annuity paid m times a year
are
Contributions 0
1
m
1
m

1
m
1
m

1
m
Time (in years) 0
1
m
2
m

m
m
m+1
m

nm
m
a
(m)
n|i
=
1
n
i
(m)
and s
(m)
n|i
=
(1 +i)
n
1
i
(m)
.
The present value of a continuous annuity with rate C(t) is
_
t
0
C(s)v
s
ds.
The present value of a continuous annuity with constant unit rate is
a
n|i
=
_
n
0
v
t
dt =
1 v
n

.
The present value of an annually increasing continuous annuity is
(I a)
n|i
=
_
n
0
[t + 1]v
t
dt =
a
n|i
nv
n

.
The present value of a continuously increasing annuity is
_

I a
_
n|i
=
_
n
0
tv
t
dt =
a
n|i
nv
n

.
The present value of an annually decreasing continuous annuity is
(Da)
n|i
=
_
n
0
[n + 1 t]v
t
dt =
n a
n|i

.
The present value of a continuously decreasing continuous annuity with is
_
Da
_
n|i
=
_
n
0
(n t)v
t
dt =
n a
n|i

.
4
2 Survival models.
The cumulative distribution function of the r.v. X is F
X
(x) = P{X x}, x R.
The survival function of the nonnegative r.v. X is S
x
(x) = s(x) = Pr{X > x}, x 0.
If h 0 and H(x) =
_
x
0
h(t) dt, x 0, then E[H(X)] =
_

0
s(t)h(t) dt. In particular,
E[X] =
_

0
s(t) dt, E[X
p
] =
_

0
s(t)pt
p1
dt, E[min(X, a)] =
_
a
0
s(t) dt.
If X is a discrete r.v.
E[H(X)] =

k=1
Pr{X k}(H(k) H(k 1)).
In particular, for a positive integer a,
E[X] =

k=1
Pr{X k}, E[X
2
] =

k=1
Pr{X k}(2k 1), E[min(X, a)] =
a

k=1
Pr{X k}.
(x) is called a lifeagex. T(x) = T
x
= X x is the future lifetime of (x).
The survival function of T(x) is
t
p
x
=
s(x+t)
s(x)
, t 0. The c.d.f. of T(x) is
t
q
x
=
s(x)s(x+t)
s(x)
,
t 0. We have that
t
q
x
= 1
t
p
x
, p
x
=
1
p
x
, q
x
=
1
q
x
,
s
|
t
q
x
= Pr{s < T(x) s +t} =
s
p
x

s+t
p
x
=
s
p
x

t
q
x+s
,
m+n
p
x
=
m
p
x

n
p
x+m
,
n
p
x
= p
x
p
x+1
. . . p
x+n1
,
P
k
j=1
n
j
p
x
=
n
1
p
x

n
2
p
x+n
1

n
3
p
x+n
1
+n
2

n
k
p
x+
P
k1
j=1
n
j
.
The force of mortality is (x) =
x
=
d
dx
ln S
X
(x) =
f
X
(x)
S
X
(x)
.
S
X
(x) = exp
_

_
x
0
(t) dt
_
,
t
p
x
= e

R
x+t
x
(y)dy
, f
T(x)
(t) =
t
p
x
(x +t).

e
0
= E[X] =
_

0
t
p
0
dt,

e
x
= E[T(x)] =
_

0
t
p
x
dt,

e
x:n|
= E[min(T(x), n)] =
_
n
0
t
p
x
dt,

e
x
=

e
x:n|
+
n
p
x

e
x+n
t is the least integer greater than or equal to t, t = k if k 1 < t k. K
x
is the time
interval of death of a life age x. K(x) is the curtate duration of death of a life aged x,
i.e. the number of complete years lived by this life.
K
x
= T(x), K(x) = K
x
1, K(x) = T(x) 1,
e
x
= E[K(x)] =

k=1
k
p
x
, E[(K(x))
2
] =

k=1
(2k 1)
k
p
x
,
e
x
= p
x
(1 +e
x+1
), e
x:n|
=
n

k=1
k
p
x
, e
x
= e
x:n|
+
n
p
x
e
x+n
,

e
x:m+n|
=

e
x:m|
+
m
p
x

e
x+m:n|
.
5
For de Moivres law:
f
X
(x) =
1

, S
X
(x) =
x

, (x) =
1
x
, for 0 x < ,
t
p
x
=
x t
x
,
t
q
x
=
t
x
, 0 t x,

e
x
=
x
2
, Var(T(x)) =
( x)
2
12
, e
x
=
x 1
2
, Var(K(x)) =
( x)
2
1
12
Under constant force of mortality :
S
X
(x) = e
x
, F
X
(x) = 1 e
x
, f
X
(x) = e
x
, (x) = , for x > 0,
t
p
x
= Pr{T(x) > t} =
s(x +t)
s(x)
= e
t
,

e
x
=
1

e
x:n|
=
1 e
n

, Var(T(x)) =
1

2
, e
x
=
p
x
q
x
, e
x:n|
=
p
x
(1 p
n
x
)
q
x
, Var(K(x)) =
p
x
q
2
x
.
3 Life tables.

x
denote the number of individuals alive at age x. The number of individuals which died
between ages x and x + t is
t
d
x
=
x

x+t
. The number of individuals which died between
ages x and x + 1 is d
x
=
x

x+1
. We have that
s(x) =

x

0
, F
X
(x) =

0

x

0
, (x) =
d
dx
log(
x
),
t
p
x
=

x+t

x
,
t
q
x
=

x

x+t

x
=
t
d
x

x
, p
x
=

x+1

x
, q
x
=

x

x+1

x
=
d
x

x
,
n
|
m
q
x
=

x+n

x+n+m

x
.

e
0
=
_

0

0
dx,

e
x
=
_

0

x+t

x
dt,

e
x:n|
=
_
n
0

x+t

x
dt, e
x
=

k=1

x+k

x
, e
x:n|
=
n

k=1

x+k

x
.
The expected number of years lived between age x and age x + n by the
x
survivors at
age x is
n
L
x
.
n
L
x
=
x

e
x:n|
=
_
n
0

x+t
dt, L
x
=
1
L
x
=
x

e
x:1|
,

e
x
=

k=x
L
k

x
,

e
x:n|
=

x+n1
k=x
L
k

x
.
Interpolation
x+t
t
p
x
L
x
uniform distribution of deaths
x
+t(
x+1

x
) 1 tq
x

x
+
x+1
2
exponential interpolation
x
p
t
x
p
t
x
d
x
log p
x
Balducci assumption
1
(1t)
1

x
+t
1

x+1
p
x
t+(1t)p
x

x+1
log p
x
q
x
6
Under uniform distribution of deaths:

x+t
=
x
+t(
x+1

x
),
t
p
x
= 1 tq
x
, f
T(x)
(t) = q
x
,
x+t
=
q
x
1 tq
x
, 0 t 1,
L
x
=

x
+
x+1
2
,

e
x
= e
x
+
1
2
.
Under exponential interpolation:

x+t
=
x
p
t
x
,
t
p
x
= p
t
x
, f
T
x
(t) = p
t
x
log p
x
,
x+t
= log p
x
, 0 t 1.
Under (Balducci assumption) harmonic interpolation:
1

x+t
= (1 t)
1

x
+t
1

x+1
,
t
p
x
=
p
x
t + (1 t)p
x
.
4 Life insurance.
type of insurance payment
whole life insurance Z
x
= v
K
x
nyear term life insurance Z
1
x:n|
= v
K
x
I(K
x
n)
nyear deferred life insurance
n
|Z
x
= v
K
x
I(n < K
x
)
nyear pure endowment life insurance Z
1
x:n|
= v
n
I(n < K
x
)
nyear endowment life insurance Z
x:n|
= v
min(K
x
,n)
myear deferred nyear term life insurance
m
|
n
Z
x
= v
K
x
I(m < K
x
m+n)
Whole life insurance paid at the end of the year:
Z
x
= v
K
x
, A
x
= E[Z
x
] =

k=1
v
k
k1
p
x
q
x+k1
,
2
A
x
=

k=1
v
2k
k1
p
x
q
x+k1
,
Var(Z
x
) =
2
A
x
A
2
x
, A
x
= vq
x
+vp
x
A
x+1
.
nyear term life insurance paid at the end of the year:
Z
1
x:n|
= v
K
x
I(K
x
n), A
1
x:n|
= E[Z
1
x:n|
] =
n

k=1
v
k

k1
|q
x
,
2
A
1
x:n|
=
n

k=1
v
2k

k1
|q
x
,
Var(Z
1
x:n|
) =
2
A
1
x:n|
A
1
x:n|
2
, A
1
x:n|
= vq
x
+vp
x
A
1
x+1:n1|
.
nyear deferred life insurance paid at the end of the year:
n
|Z
x
= v
K
x
I(n < K
x
),
n
|A
x
= E[
n
|Z
x
] =

k=n+1
v
k

k1
|q
x
,
2
n
|A
x
=

k=n+1
v
2k

k1
|q
x
,
Var(
n
|Z
x
) =
2
n
|A
x

n
|A
x
2
,
n
|A
x
= v
n
n1
p
x
q
x+n1
+
n+1
|A
x
.
7
nyear pure endowment life insurance paid at the end of the year:
Z
1
x:n|
= v
n
I(n < K
x
), A
1
x:n|
= E[Z
1
x:n|
] =
n
E
x
= v
n

n
p
x
,
2
A
1
x:n|
= v
2n

n
p
x
, Var(Z
1
x:n|
) =
2
A
1
x:n|
A
1
x:n|
2
.
nyear endowment life insurance paid at the end of the year:
Z
x:n|
= v
min(K
x
,n)
, A
x:n|
=
n
E
x
= E[Z
x:n|
] =
n

k=1
v
k

k1
|q
x
+v
n
n
p
x
,
2
A
x:n|
=
n

k=1
v
2k

k1
|q
x
+v
2n
n
p
x
, Var(Z
x:n|
) =
2
A
x:n|
A
x:n|
2
.
n
|A
x
=
n
E
x
A
x+n
, A
x
= A
1
x:n|
+
n
|A
x
= A
1
x:n|
+
n
E
x
A
x+n
,
2
A
x
=
2
A
1
x:n|
+
2
n
|A
x
,
A
x:n|
= A
1
x:n|
+A
1
x:n|
,
2
A
x:n|
=
2
A
1
x:n|
+
2
A
1
x:n|
,
Increasing/decreasing life insurance paid at the end of the year:
(IA)
x
=

k=1
kv
k

k1
|q
x
, (IA)
1
x:n|
=
n

k=1
kv
k

k1
|q
x
, (DA)
1
x:n|
=
n

k=1
(n + 1 k)v
k

k1
|q
x
.
Under de Moivres model with terminal age , if , x, n are a positive integers,
A
x
=
a
x|i
x
, A
1
x:n|
=
a
n|
x
, A
1
x:n|
= v
n
x n
x
,
n
|A
x
= v
n
a
xn|i
x
.
Under constant force of mortality:
A
x
=
q
x
q
x
+i
, A
1
x:n|
= e
n(+)
,
n
|A
x
= e
n(+)
q
x
q
x
+i
, A
1
x:n|
= (1 e
n(+)
)
q
x
q
x
+i
.
type of insurance payment
whole life insurance Z
x
= v
K
x
nyear term life insurance Z
1
x:n|
= v
T
x
I(T
x
n)
nyear deferred life insurance
n
|Z
x
= v
T
x
I(n < T
x
)
nyear pure endowment life insurance Z
1
x:n|
= v
n
I(n < T
x
)
nyear endowment life insurance Z
x:n|
= v
min(T
x
,n)
myear deferred n-year term life insurance
m
|
n
Z
x
= v
T
x
I(m T
x
m+n)
Whole life insurance paid at the time of death:
Z
x
= v
T
x
A
x
= E[Z
x
] =
_

0
v
t
f
T
x
(t) dt,
2
A
x
= E[(Z
x
)
2
] =
_

0
v
2t
f
T
x
(t) dt, Var(Z
x
) =
2
A
x
A
2
x
.
8
nyear term life insurance paid at the time of death:
Z
1
x:n|
= v
T
x
I(T
x
n), A
1
x:n|
= E[Z
1
x:n|
] =
_
n
0
v
t
f
T
x
(t) dt,
2
A
1
x:n|
= E[Z
1
x:n|
2
] =
_
n
0
v
2t
f
T
x
(t) dt, Var(Z
1
x:n|
) =
2
A
1
x:n|
A
1
x:n|
2
.
nyear deferred life insurance paid at the time of death:
n
|Z
x
= v
T
x
I(n < T
x
),
n
|A
x
= E[
n
|Z
x
] =
_

n
v
t
f
T
x
(t) dt,
2
n
|A
x
= E[
n
|Z
x
2
] =
_

n
v
2t
f
T
x
(t) dt, Var(
n
|Z
x
) =
2
n
|A
x

n
|A
x
2
.
nyear endowment life insurance:
Z
x:n|
= v
min(T
x
,n)
, A
x:n|
= E[Z
x:n|
] =
_
n
0
v
t
f
T
x
(t) dt +v
n
Pr{T
x
> n},
2
A
x:n|
= E[(Z
x:n|
)
2
] =
_
n
0
v
2t
f
T
x
(t) dt +v
2n
Pr{T
x
> n}, Var(Z
x:n|
) =
2
A
x:n|
A
x:n|
2
.
Z
x
= Z
1
x:n|
+
n
|Z
x
, A
x
= A
1
x:n|
+
n
|A
x
,
2
A
x
=
2
A
1
x:n|
+
2
n
|A
x
,
Z
x:n|
= Z
1
x:n|
+E
1
x:n|
, A
x:n|
= A
1
x:n|
+A
1
x:n|
,
2
A
x:n|
=
2
A
1
x:n|
+
2
A
1
x:n|
,
n
|A
x
=
n
E
x
A
x+n
.
Under de Moivres model with terminal age ,
A
x
=
a
x|i
x
, A
1
x:n|
=
a
n|i
x
, A
1
x:n|
= e
n
x n
x
,
n
|A
x
= e
n
a
xn|i
x
.
Under constant force of mortality:
A
x
=

+
, A
1
x:n|
= e
n(+)
,
n
|A
x
= e
n(+)

+
, A
1
x:n|
= (1 e
n(+)
)

+
.
Continuously increasing whole life insurance: b
t
= t, t 0,
_
I A
_
x
=
_

0
tv
t

t
p
x

x+t
dt.
Annually increasing whole life insurance: b
t
= t, t 0, present value is denoted
by
_
I A
_
x
=

k=1
_
k
k1
kv
t

t
p
x

x+t
dt.
9
nyear term continuously increasing whole life insurance: b
t
= t, 0 t n,
_
I A
_
1
x:n|
=
_
n
0
tv
t

t
p
x

x+t
dt.
nyear term annually increasing whole life insurance: b
t
= t, 0 t n,
_
I A
_
1
x:n|
=
n

k=1
_
k
k1
kv
t

t
p
x

x+t
dt.
Continuously decreasing life insurance: b
t
= n t, 0 t n,
_
D A
_
1
x:n|
=
_
n
0
(n t)v
t

t
p
x

x+t
dt.
Annually decreasing life insurance: b
t
= n t, 0 t n,
_
D A
_
1
x:n|
=
n

k=1
_
k
k1
(n + 1 k)v
t

t
p
x

x+t
dt.
Assuming a uniform distribution of deaths:
A
x
=
i

A
x
, A
1
x:n|
=
i

A
1
x:n|
,
n
|A
x
=
i

n
|A
x
, A
x:n|
=
i

A
1
x:n|
+A
1
x:n|
,
A
(m)
x
=
i
i
(m)
A
x
, A
(m)
1
x:n|
=
i
i
(m)
A
1
x:n|
,
n
|A
(m)
x
=
i
i
(m)

n
|A
x
, A
(m)
x:n|
=
i
i
(m)
A
1
x:n|
+A
1
x:n|
.
5 Life annuities.
due annuities present value APV
whole life

Y
x
= a
K
x
|
=
1Z
x
d
a
x
=
1A
x
d
nyear deferred life insurance
n
|

Y
x
= v
n
a
K
x
n|
I(K
x
> n)
n
| a
x
=
n
E
x
a
x+n
nyear term

Y
x:n|
= a
min(K
n
,n)|
=
1Z
x:n|
d
a
x:n|
=
1A
x:n|
d
immediate annuities present value APV
whole life Y
x
= a
K
x
1|
=
vZ
x
d
a
x
=
vA
x
d
nyear deferred life insurance
n
|Y
x
= v
n
a
K
x
n1|
I(K
x
> n + 1)
n
|a
x
=
n
E
x
a
x+n
nyear term Y
x:n|
= a
min(K
x
1,n)|
=
vZ
x:n+1|
d
a
x:n|
=
vA
x:n+1|
d
continuous annuities present value APV
whole life Y
x
= a
T
x
|
=
1Z
x

a
x
=
1A
x

nyear deferred life insurance

a
x:n|
=
1A
x:n|

10
Discrete whole life due annuity:

Y
x
= a
K
x
|
=
1 Z
x
d
, a
x
=
1 A
x
d
=

k=0
v
k
k
p
x
, Var(

Y
x
) =
2
A
x
A
2
x
d
2
, a
x
= 1 +vp
x
a
x+1
.
Whole life immediate annuity:
Y
x
= a
K
x
1|
=

Y
x
1 =
v Z
x
d
, a
x
=
v A
x
d
=

k=1
v
k
k
p
x
,
Var(Y
x
) =
2
A
x
A
2
x
d
2
, a
x
= vp
x
a
x+1
= vp
x
(1 +a
x+1
).
Whole life continuous annuity:
Y
x
= a
T
x
|
=
1 Z
x

, a
x
=
1 A
x

=
_

0
v
t

t
p
x
dt, Var(Y
x
) =
2
A
x
A
2
x

2
.
nyear deferred discrete due annuity:
n
|

Y
x
= v
n
a
K
x
n|
I(K
x
> n),
n
| a
x
=

k=n
v
k

k
p
x
=
n
E
x
a
x+n
.
nyear deferred discrete immediate annuity:
n
|Y
x
=
n+1
|

Y
x
,
n
|a
x
=
n+1
| a
x
= vp
x

n1
|a
x+1
.
nyear deferred continuous annuity:
n
|Y
x
= v
n
a
T
x
n|
I(T
x
> n),
n
|a
x
=
_

n
v
t

t
p
x
dt =
n
E
x
a
x+n
.
nyear term due discrete annuity:

Y
x:n|
= a
min(K
n
,n)|
=
1 Z
x:n|
d
, a
x:n|
=
n1

k=0
v
k
k
p
x
=
1 A
x:n|
d
,
Var(

Y
x:n|
) =
2
A
x:n|
(A
x:n|
)
2
d
2
, a
x:n+m|
= a
x:n|
+
n
E
x
a
x+n:m|
,
a
x
= a
x:n|
+
n
| a
x
= a
x:n|
+
n
E
x
a
x+n
.
nyear term discrete immediate annuity:
Y
x:n|
= a
min(K
x
1,n)|
=

Y
x:n+1|
1 =
v Z
x:n+1|
d
,
a
x:n|
= a
x:n+1|
1 =
n

k=1
v
k

k
p
x
=
v A
x:n+1|
d
Var(Y
x:n|
) =
2
A
x:n+1|
(A
x:n+1|
)
2
d
2
,
a
x
=
n
|a
x
+a
x:n|
=
n
|a
x
+
n
E
x
a
x+n
,
11
nyear term continuous annuity:
Y
x:n|
= a
min(T
x
,n)|
=
1 v
min(T
x
,n)

=
1 Z
x:n|

, a
x:n|
=
_
n
0
v
s
s
p
x
ds =
1 A
x:n|

,
Var(Y
x:n|
) =
2
A
x:n|
(A
x:n|
)
2

2
, a
x:n+m|
= a
x:n|
+
n
E
x
a
x+n:m|
, a
x
= a
x:n|
+
n
|a
x
.
Under constant force of mortality:
a
x
=
1
1 vp
x
=
1 +i
q
x
+i
=
1
1 e
(+)
, a
x
=
vp
x
1 vp
x
=
1 q
x
q
x
+i
=
e
(+)
1 e
(+)
, a
x
=
1
+
.
Annuities paid m times a year.
For a whole life unity annuitydue to (x) paid m times a year:

Y
(m)
x
=
1 Z
(m)
x
d
(m)
, a
(m)
x
=
1 A
(m)
x
d
(m)
=
1
m

k=0
v
k
m
k
m
p
x
, Var(

Y
(m)
x
) =
2
A
(m)
x
(A
(m)
x
)
2
(d
(m)
)
2
.
For a whole life unity annuityimmediate to (x) paid m times a year:
Y
(m)
x
=

Y
(m)
x

1
m
=
v
1/m
Z
(m)
x
d
(m)
,
a
(m)
x
= a
(m)
x

1
m
=
v
1/m
A
(m)
x
d
(m)
=
1
m

k=1
v
k
m
k
m
p
x
,
Var(Y
(m)
x
) =
2
A
(m)
x
(A
(m)
x
)
2
(d
(m)
)
2
.
For a nyear unity annuitydue to (x) paid m times a year:

Y
(m)
x:n|
=
1 Z
(m)
x:n|
d
(m)
, a
(m)
x:n|
=
1 A
(m)
x:n|
d
(m)
=
1
m
nm1

k=0
v
1
m
k
m
p
x
,
Var(

Y
(m)
x:n|
) =
Var(Z
(m)
x:n|
)
(d
(m)
)
2
.
For a nyear unity annuitydue to (x) paid m times a year:

Y
(m)
x:n|
=
1 Z
(m)
x:n|
d
(m)
, a
(m)
x:n|
=
1 A
(m)
x:n|
d
(m)
=
1
m
nm1

k=0
v
1
m
k
m
p
x
, Var(

Y
(m)
x:n|
) =
Var(Z
(m)
x:n|
)
(d
(m)
)
2
.
For a nyear unity annuityimmediate to (x) paid m times a year:
Y
(m)
x:n|
=

Y
(m)
x:n|

1
m
+
1
m
Z
1
x:n|
, a
(m)
x:n|
= a
(m)
x:n|

1
m
+
1
m

n
E
x
.
12
For a nyear deferred unity annuitydue to (x) paid m times a year:
n
|

Y
(m)
x
=
Z
1
x:n|

n
|Z
(m)
x
d
(m)
,
n
| a
(m)
x
=
A
1
x:n|

n
|A
(m)
x
d
(m)
=
1
m

k=nm
v
k
m
k
m
p
x
=
n
E
x
a
(m)
x+n
,
a
(m)
x
= a
(m)
x:n|
+
n
| a
(m)
x
= a
(m)
x:n|
+
n
E
x
a
(m)
x+n
.
For a nyear deferred unity annuityimmediate to (x) paid m times a year:
n
|Y
(m)
x
=
n
|

Y
(m)
x

1
m
Z
1
x:n|
,
n
|a
(m)
x
=
n
E
x
a
(m)
x+n
=
n
| a
(m)
x

1
m
n
E
x
,
a
(m)
x
= a
(m)
x:n|
+
n
|a
(m)
x
= a
(m)
x:n|
+
n
E
x
a
(m)
x+n
.
Under an uniform distribution of deaths within each year:
a
(m)
x
=
1
i
i
(m)
A
x
d
(m)
, a
(m)
x
= a
(m)
x

1
m
=
v
1/m

i
i
(m)
A
x
d
(m)
, a
x
=
1
i

A
x

.
6 Benet Premiums.
Fully discrete insurance
Whole life insurance:
L
x
= v
K
x
P a
K
x
|
= Z
x
P

Y
x
= Z
x
P

Y
x
= Z
x
_
1 +
P
d
_

P
d
,
E[L
x
] = A
x
P a
x
= A
x
_
1 +
P
d
_

P
d
,
Var(L
x
) =
_
1 +
P
d
_
2
Var(Z
x
) =
_
1 +
P
d
_
2
_
2
A
x
A
x
2
_
.
Under the equivalence principle:
P
x
=
A
x
a
x
=
dA
x
1 A
x
=
1
a
x
d,
Var(L
x
) =
2
A
x
A
x
2
(1 A
x
)
2
=
2
A
x
A
x
2
(d a
x
)
2
,
t
P
x
=
A
x
a
x:t|
.
nyear term insurance:
L
1
x:n|
= Z
1
x:n|
P

Y
x:n|
= Z
1
x:n|
P
1 Z
x:n|
d
,
P
1
x:n|
= P(A
1
x:n|
) =
A
1
x:n|
a
x:n|
,
t
P
1
x:n|
= P(
t
A
1
x:n|
) =
A
1
x:n|
a
x:t|
.
13
nyear pure endowment:
L
1
x:n|
= Z
1
x:n|
P

Y
x:n|
= Z
1
x:n|
P
1 Z
x:n|
d
,
P
1
x:n|
= P(A
1
x:n|
) =
A
1
x:n|
a
x:n|
,
t
P
1
x:n|
= P(
t
A
1
x:n|
) =
A
1
x:n|
a
x:t|
.
nyear endowment:
L
x:n|
= v
min(n,K
x
)
P a
min(K
x
,n)|
= Z
x:n|
P

Y
x:n|
= Z
x:n|
P
1 Z
x:n|
d
=
_
1 +
P
d
_
Z
x:n|

P
d
,
Var(L
x:n|
) =
_
1 +
P
d
_
2
Var(Z
x:n|
) =
_
1 +
P
d
_
2
_
2
A
x:n|
(A
x:n|
)
2
_
,
P
x:n|
= P(A
x:n|
) =
A
x:n|
a
x:n|
,
t
P
x:n|
= P(
t
A
x:n|
) =
A
x:n|
a
x:t|
,
Var(L
x:n|
) =
_
1 +
P
x:n|
d
_
2
_
2
A
x:n|
A
x:n|
2
_
=
2
A
x:n|
A
x:n|
2
_
1 A
x:n|
_
2
=
2
A
x:n|
A
x:n|
2
_
d a
x:n|
_
2
.
nyear deferred insurance:
n
|Z
x
P

Y
x
, P(
n
|A
x
) =
n
|A
x
a
x
,
t
P(
n
|A
x
) =
n
|A
x
a
x:t|
.
Properties:
P
x:n|
= P
1
x:n|
+P
1
x:n|
,
n
P
x
= P
1
x:n|
+P
1
x:n|
A
x+n
.
Semicontinuous annual benet premiums
Whole life insurance:
P
x
= P(A
x
) =
A
x
a
x
,
t
P
x
=
t
P(A
x
) =
A
x
a
x:t|
.
nyear term insurance:
P
1
x:n|
=
A
1
x:n|
a
x:n|
,
t
P
1
x:n|
=
t
P(A
1
x:n|
) =
A
1
x:n|
a
x:t|
nyear pure endowment:
P
1
x:n|
= P(A
1
x:n|
) =
A
1
x:n|
a
x:n|
,
t
P
1
x:n|
=
t
P(A
1
x:n|
) =
A
1
x:n|
a
x:t|
.
14
nyear endowment:
P
x:n|
= P(A
x:n|
) =
A
x:n|
a
x:n|
,
t
P
x:n|
=
t
P(A
x:n|
) =
A
x:n|
a
x:t|
.
nyear deferred insurance:
P(
n
|A
x
) =
n
|A
x
a
x:n|
,
t
P(
n
|A
x
) =
n
|A
x
a
x:n|
Fully continuous insurance
Whole life insurance:
L(A
x
) = v
T
x
Pa
T
x
|
= Z
x
PY
x
= Z
x

1 Z
x

= Z
x
_
1 +
P

,
Var(L(A
x
)) =
_
1 +
P

_
2
Var(Z
x
) =
_
1 +
P

_
2
_
2
A
x
A
x
2
_
,
P(A
x
) =
A
x
a
x
=
A
x
1 A
x
=
1
a
x
,
t
P(A
x
) =
A
x
a
x:t|
.
Var(L(A
x
)) =
_
1 +
P(A
x
)

_
2
_
2
A
x
A
x
2
_
=
2
A
x
A
x
2
(1 A
x
)
2
=
2
A
x
A
x
2
(a
x
)
2
.
nyear term insurance:
L = Z
1
x:n|
PY
x:n|
, P(A
1
x:n|
) =
A
1
x:n|
a
x:n|
,
t
P(A
1
x:n|
) =
A
1
x:n|
a
x:t|
.
nyear pure endowment:
L = Z
1
x:n|
PY
x:n|
, P(A
1
x:n|
) =
A
1
x:n|
a
x:n|
,
t
P(A
1
x:n|
) =
A
1
x:n|
a
x:t|
.
nyear endowment:
L = Z
x:n|
PY
x:n|
= Z
x:n|
P
1 Z
x:n|

=
_
1 +
P

Z
x:n|
,
Var(L) =
_
1 +
P

_
_
2
A
x:n|

_
A
x:n|
_
2
_
,
P(A
x:n|
) =
A
x:n|
a
x:n|
=
1 a
x:n|
a
x:n|
=
A
x:n|
1 A
x:n|
, Var(L) =
2
A
x:n|
A
x:n|
2
_
1 A
x:n|
_
2
,
t
P(A
x:n|
) =
A
x:n|
a
x:t|
.
nyear deferred insurance:
L =
n
|Z
x
PY
x:n|
, P(
n
|A
x
) =
n
|A
x
a
x:n|
.
15
nyear deferred annuities
nyear deferred due annuity:
L =
n
|

Y
x
P

Y
x:n|
, P(
n
| a
x
) =
n
| a
x
a
x:n|
.
nyear deferred immediate annuity:
L =
n
|Y
x
P

Y
x:n|
, P(
n
|a
x
) =
n
|a
x
a
x:n|
.
nyear deferred continuous annuity funded discretely:
L =
n
|Y
x
P

Y
x:n|
, P(
n
|a
x
) =
n
|a
x
a
x:n|
.
nyear deferred continuous annuity funded continuously:
L =
n
|Y
x
PY
x:n|
, P(
n
|a
x
) =
n
|a
x
a
x:n|
.
16