1 Interest Theory

A(t)
A(t) is the amount function. a(t) is the accumulation function. a(t) = A(0)
.

kA(t)
k at time s ≡ at time t.
A(s)
1
vt = a(t)
, t ≥ 0, is called the discount function discount function.

kvt
k at time s ≡ at time t.
vs
Under compound interest vt = (1 + i)−t . i is the annual effective rate of interest. 1 + i
is the one year interest factor. ν = 1 − d is the one year discount factor. d is the
annual rate of discount.
d 1−ν i 1
i= = , d= = 1 − ν, = 1 − d = ν, iν = d, 1 = (1 − d)(1 + i).
1−d ν i+1 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.
µ ¶m µ ¶−m
i(m) −1 d(m)
1+i= 1+ = (1 − d) = 1 − .
m m
The force of interest is
d d a0 (t) d A0 (t)
δt = − ln(vt ) = ln a(t) = = ln A(t) = .
dt dt a(t) dt A(t)

Rt Rt
vt = e− 0 δs ds
, a(t) = e 0 δs ds
.

Annuities
The cashflow, present and future values of an annuity–due with level payments of one
are:
Contributions 1 1 1 ··· 1 0
Time 0 1 2 ··· n−1 n

1 − νn (1 + i)n − 1
än|i =
and s̈n|i = .
d d
The cashflow, present and future values of an annuity–immediate with level payments
of one:
Contributions 0 1 1 ··· 1
Time 0 1 2 ··· n

1
 1 − νn (1 + i)n − 1
an|i = and sn|i = .
i i
The cashflow and present value of an perpetuity–due with level payments of one are:
Contributions 1 1 1 ···
Time 0 1 2 ···

1
ä∞|i = .
d
The cashflow and present value of a perpetuity–immediate with level payments of one
are:
Contributions 0 1 1 ···
Time 0 1 2 ···

1
a∞|i = .
i
The cashflow and present value of a geometric annuity–due with first payment of one
are:
Payments 1 1+r (1 + r)2 ··· (1 + r)n−1
Time 0 1 2 ··· n−1
and
(Gä)n|i,r = än| i−r .
1+r

The cashflow and present value of a geometric annuity–immediate with first payment
of one are:
Payments 1 1 + r (1 + r)2 ··· (1 + r)n−1
and
Time 1 2 3 ··· n

1
(Ga)n|i,r = a i−r .
1 + r n| 1+r
The cashflow and present value of a geometric perpetuity–due with first payment of
one are:
Payments 1 1+r (1 + r)2 ··· (1 + r)n−1 ···
Time 0 1 2 ··· n ···
and (
1+i
i−r
if i > r,
(Gä)∞|i,r =
∞ if i ≤ r.
The cashflow and present value of a geometric perpetuity–immediate with first pay-
ment of one are:

2
 Payments 1 1+r (1 + r)2 ··· (1 + r)n−1 ···
Time 1 2 3 ··· n ···
and (
1
i−r
if i > r
(Ga)∞−−|i,r =
∞ if i ≤ r.
The cashflow, present and future values of a due increasing annuity with first payment
of one are:
Payments 1 2 3 ··· n
Time 0 1 2 ··· n−1

än|i − nν n s̈n|i − n
(Iä)n|i = and (I s̈)n|i = .
d d
The cashflow, present and future values of an immediate increasing annuity with first
payment of one are:
Payments 1 2 3 ··· n
Time 1 2 3 ··· n

än|i − nν n s̈n|i − n
(Ia)n|i = and (Is)n|i = .
i i
The cashflow and present value of an increasing due perpetuity with first payment of
one are:
Payments 1 2 3 ···
Time 0 1 2 ···
and (Iä)∞|i = d12 .
The cashflow and present value of an increasing immediate perpetuity with first
payment of one are:
Payments 1 2 3 ···
Time 1 2 3 ···
and (Ia)∞|i = id1 .
The cashflow, present and future values of a decreasing due annuity with first payment
of one are:
Payments n n − 1 n − 2 ··· 1
Time 0 1 2 ··· n−1

n − an|i n(1 + i)n − sn|i

(Dä)n|i = and (Ds̈)n|i = .
d d
The cashflow, present and future values of a decreasing immediate annuity with first
payment of one are:

3
 Payments n n − 1 n − 2 ··· 1
Time 1 2 3 ··· n

n − an|i n(1 + i)n − sn|i

(Da)n|i = and (Ds)n|i = .
i i
The cashflow, present and future values of a due annuity paid m times a year are
1 1 1 1 1 1
Contributions m m m
··· m m
··· ··· m
0
1 2 m m+1 nm−1 nm
Time (in years) 0 m m
··· m m
··· ··· m m

(m) 1 − νn (m) (1 + i)n − 1

än|i = and s̈n|i = .
d(m) d(m)
The cashflow, present and future values of an immediate annuity paid m times a year
are
1 1 1 1 1
Contributions 0 m m
··· m m
··· ··· m
1 2 m m+1 nm
Time (in years) 0 m m
··· m m
··· ··· m

(m) 1 − νn (m) (1 + i)n − 1

an|i
= (m) and sn|i = .
i i(m)
The present value of a continuous annuity with rate C(t) is
Z t
C(s)v s ds.
0

The present value of a continuous annuity with constant unit rate is

Z n
1 − vn
an|i = v t dt = .
0 δ
The present value of an annually increasing continuous annuity is
Z n
än|i − nv n
(Iā)n|i = [t + 1]v t dt = .
0 δ
The present value of a continuously increasing annuity is
Z n
¡ ¢ ān|i − nv n
¯
Iā = tv t
dt = .
n|i δ
0

The present value of an annually decreasing continuous annuity is

Z n
n − an|i
(Da)n|i = [n + 1 − t]v t dt = .
0 δ
The present value of a continuously decreasing continuous annuity with is
Z n
¡ ¢ n − an|i
Da n|i = (n − t)v t dt = .
0 δ

4
2 Survival models.
The cumulative distribution function of the r.v. X is FX (x) = P {X ≤ x}, x ∈ R.
The survival function of the nonnegative r.v. X is Sx (x) = s(x) = Pr{X > x}, x ≥ 0.
Rx R∞
If h ≥ 0 and H(x) = 0 h(t) dt, x ≥ 0, then E[H(X)] = 0 s(t)h(t) dt. In particular,
Z ∞ Z ∞ Z a
p p−1
E[X] = s(t) dt, E[X ] = s(t)pt dt, E[min(X, a)] = s(t) dt.
0 0 0
If X is a discrete r.v.
∞
X
E[H(X)] = Pr{X ≥ k}(H(k) − H(k − 1)).
k=1

In particular, for a positive integer a,

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

(x) is called a life–age–x. T (x) = Tx = X − x is the future lifetime of (x).

The survival function of T (x) is t px = s(x+t)
s(x)
, t ≥ 0. The c.d.f. of T (x) is t qx = s(x)−s(x+t)
s(x)
,
t ≥ 0. We have that

t qx = 1 − t px , px = 1 px , qx = 1 qx , s |t qx = Pr{s < T (x) ≤ s + t} = s px − s+t px = s px · t qx+s ,

m+n px = m px · n px+m , n px = px px+1 . . . px+n−1 ,
nj px = n1 px · n2 px+n1 · n3 px+n1 +n2 · · · nk px+Pk−1 nj .
Pk
j=1 j=1

The force of mortality is µ(x) = µx = − dxd

ln SX (x) = SfXX (x)
(x)
.
µ Z x ¶ R x+t
SX (x) = exp − µ(t) dt , t px = e− x µ(y)dy , fT (x) (t) = t px µ(x + t).
0

Z ∞ Z ∞
◦ ◦
e0 = E[X] = t p0 dt, ex = E[T (x)] = t px dt,
0 0
Z n
◦ ◦ ◦ ◦
ex:n| = E[min(T (x), n)] = t px dt, ex = ex:n| + n px ex+n
0

dte is the least integer greater than or equal to t, dte = k if k − 1 < t ≤ k. Kx 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.
Kx = dT (x)e, K(x) = Kx − 1, K(x) = dT (x)e − 1,
∞
X ∞
X
2
ex = E[K(x)] = p
k x , E[(K(x)) ] = (2k − 1) · k px ,
k=1 k=1
n
X ◦ ◦ ◦
ex = px (1 + ex+1 ), ex:n| = k px , e x = ex:n| + n px ex+n , ex:m+n| = ex:m| + m px ex+m:n| .
k=1

5
 For de Moivre’s law:
1 ω−x 1
fX (x) = , SX (x) = , µ(x) = , for 0 ≤ x < ω,
ω ω ω−x
ω−x−t t
t px = , t qx = , 0 ≤ t ≤ ω − x,
ω−x ω−x
◦ ω−x (ω − x)2 ω−x−1 (ω − x)2 − 1
ex = , Var(T (x)) = , ex = , Var(K(x)) =
2 12 2 12
Under constant force of mortality µ:

SX (x) = e−µx , FX (x) = 1 − e−µx , fX (x) = µe−µx , µ(x) = µ, for x > 0,

s(x + t)
t px = Pr{T (x) > t} = = e−µt ,
s(x)
◦ 1 ◦ 1 − e−µn 1 px px (1 − pnx ) px
ex = , ex:n| = , Var(T (x)) = 2 , ex = , ex:n| = , Var(K(x)) = 2 .
µ µ µ qx qx qx

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 dx = `x − `x+t . The number of individuals which died between
ages x and x + 1 is dx = `x − `x+1 . We have that
`x `0 − `x d
s(x) = , FX (x) = , µ(x) = − log(`x ),
`0 `0 dx
`x+t `x − `x+t d
t x `x+1 `x − `x+1 dx `x+n − `x+n+m
t px = , t qx = = , px = , qx = = , n |m q x = .
`x `x `x `x `x `x `x

Z ∞ Z ∞ Z n ∞X `x+k n
X `x+k
◦ `x ◦ `x+t ◦ `x+t
e0 = dx, ex = dt, ex:n| = dt, ex = , ex:n| = .
0 `0 0 `x 0 `x k=1
`x
k=1
`x

The expected number of years lived between age x and age x + n by the `x survivors at
age x is n Lx .
Z n P∞ Px+n−1
◦ ◦ ◦ k=x Lk ◦ Lk
n Lx = `x ex:n| = `x+t dt, Lx = 1 Lx = `x ex:1| , ex = , ex:n| = k=x .
0 `x `x

Interpolation `x+t t px Lx
`x +`x+1
uniform distribution of deaths `x + t(`x+1 − `x ) 1 − tqx 2

dx
exponential interpolation `x ptx ptx − log px

1 px −`x+1 log px
Balducci assumption (1−t) `1 +t ` 1 t+(1−t)px qx
x x+1

6
 Under uniform distribution of deaths:
qx
`x+t = `x + t(`x+1 − `x ), t px = 1 − tqx , fT (x) (t) = qx , µx+t = , 0 ≤ t ≤ 1,
1 − tqx
`x + `x+1 ◦ 1
Lx = , ex = ex + .
2 2
Under exponential interpolation:

`x+t = `x ptx , t px = ptx , fTx (t) = −ptx log px , µx+t = − log px , 0 ≤ t ≤ 1.

Under (Balducci assumption) harmonic interpolation:

1 1 1 px
= (1 − t) +t , t px = .
`x+t `x `x+1 t + (1 − t)px

4 Life insurance.
type of insurance payment
whole life insurance Zx = v Kx
1
n–year term life insurance Zx:n| = v Kx I(Kx ≤ n)
Kx
n–year deferred life insurance n |Zx = v I(n < Kx )
1 n
n–year pure endowment life insurance Zx:n| = v I(n < Kx )
n–year endowment life insurance Zx:n| = v min(Kx ,n)
Kx
m–year deferred n–year term life insurance m |n Z x = v I(m < Kx ≤ m + n)

Whole life insurance paid at the end of the year:

∞
X ∞
X
Kx k 2
Zx = v , Ax = E[Zx ] = v k−1 px · qx+k−1 , Ax = v 2k k−1 px · qx+k−1 ,
k=1 k=1
2
Var(Zx ) = Ax − A2x , Ax = vqx + vpx Ax+1 .

n–year term life insurance paid at the end of the year:

n
X n
X
1 Kx
Zx:n| =v I(Kx ≤ n), A1x:n| = 1
E[Zx:n| ] = k
v · k−1 |qx , 2
A1x:n| = v 2k · k−1 |qx ,
k=1 k=1
1 2 2
Var(Zx:n| ) = A1x:n| − A1x:n| , A1x:n| = vqx + vpx A1x+1:n−1| .

n–year deferred life insurance paid at the end of the year:

∞
X ∞
X
Kx k 2
n |Zx =v I(n < Kx ), n |Ax = E[n |Zx ] = v · k−1 |qx , n |Ax = v 2k · k−1 |qx ,
k=n+1 k=n+1
2
Var(n |Zx ) = 2 n |Ax − n |Ax , n |Ax = v n n−1 px · qx+n−1 + n+1 |Ax .

7
n–year pure endowment life insurance paid at the end of the year:
1
Zx:n| = v n I(n < Kx ), Ax:n|
1 1
= E[Zx:n| ] = n Ex = v n · n px ,
2 1 2
Ax:n| = v 2n · n px , Var(Zx:n|
1
) = 2 Ax:n|
1 1
− Ax:n| .

n–year endowment life insurance paid at the end of the year:

n
X
min(Kx ,n)
Zx:n| = v , Ax:n| = n Ex = E[Zx:n| ] = v k · k−1 |qx + v n n px ,
k=1
n
X
2
Ax:n| = v 2k · k−1 |qx + v 2n n px , Var(Zx:n| ) = 2 Ax:n| − Ax:n| 2 .
k=1

n |Ax = n Ex Ax+n , Ax = A1x:n| + n |Ax = A1x:n| + n Ex Ax+n , 2 Ax = 2 A1x:n| + 2 n |Ax ,

Ax:n| = A1x:n| + Ax:n|
1
, 2 Ax:n| = 2 A1x:n| + 2 Ax:n|
1
,

Increasing/decreasing life insurance paid at the end of the year:

∞
X n
X n
X
1
(IA)x = k
kv · k−1 |qx , (IA)x:n| = k
kv · k−1 |qx , (DA)1x:n| = (n + 1 − k)v k · k−1 |qx .
k=1 k=1 k=1

Under de Moivre’s model with terminal age ω, if ω, x, n are a positive integers,

aω−x|i an| ω−x−n aω−x−n|i
Ax = , A1x:n| = 1
, Ax:n| = vn , n |Ax = v n .
ω−x ω−x ω−x ω−x
Under constant force of mortality:
qx 1 qx qx
Ax = , Ax:n| = e−n(µ+δ) , n |Ax = e−n(µ+δ) , A1x:n| = (1 − e−n(µ+δ) ) .
qx + i qx + i qx + i
type of insurance payment
whole life insurance Z x = v Kx
1
n–year term life insurance Z x:n| = v Tx I(Tx ≤ n)
Tx
n–year deferred life insurance n |Z x = v I(n < Tx )
1
n–year pure endowment life insurance Z x:n| = v n I(n < Tx )
n–year endowment life insurance Z x:n| = v min(Tx ,n)
Tx
m–year deferred n-year term life insurance m |n Z x = v I(m ≤ Tx ≤ m + n)

Whole life insurance paid at the time of death:

Z ∞
Tx
Z x = v Ax = E[Z x ] = v t fTx (t) dt,
Z ∞ 0
2 2
Ax = E[(Z x )2 ] = v 2t fTx (t) dt, Var(Z x ) = 2 Ax − Ax .
0

8
 n–year term life insurance paid at the time of death:
Z n
1 Tx 1 1
Z x:n| = v I(Tx ≤ n), Ax:n| = E[Z x:n| ] = v t fTx (t) dt,
0
Z n
1 1 2 1 2
2
Ax:n| = E[Z x:n| ] = v 2t fTx (t) dt, Var(Z x:n| ) = 2 A1x:n| − A1x:n| .
0

n–year deferred life insurance paid at the time of death:

Z ∞
Tx
n |Z x = v I(n < Tx ), n |Ax = E[n |Z x ] = v t fTx (t) dt,
n
Z ∞
2 2 2
n |Ax = E[n |Z x ] = v 2t fTx (t) dt, Var(n |Z x ) = 2 n |Ax − n |Ax .
n

n–year endowment life insurance:

Z n
min(Tx ,n)
Z x:n| = v , Ax:n| = E[Z x:n| ] = v t fTx (t) dt + v n Pr{Tx > n},
0
Z n
2 2
Ax:n| = E[(Z x:n| )2 ] = v 2t fTx (t) dt + v 2n Pr{Tx > n}, Var(Z x:n| ) = 2 Ax:n| − Ax:n| .
0

1 1 1
Z x = Z x:n| + n |Z x , Ax = Ax:n| + n |Ax , 2 Ax = 2 Ax:n| + 2 n |Ax ,
1 1 1 1 1
Z x:n| = Z x:n| + Ex:n| , Ax:n| = Ax:n| + Ax:n| , 2 Ax:n| = 2 Ax:n| + 2 Ax:n|
1
,
n |Ax = n Ex Ax+n .

Under de Moivre’s model with terminal age ω,

aω−x|i 1 an|i 1 ω−x−n aω−x−n|i
Ax = , Ax:n| = , Ax:n| = e−nδ , n |Ax = e−nδ .
ω−x ω−x ω−x ω−x
Under constant force of mortality:
µ 1 µ 1 µ
Ax = , Ax:n| = e−n(µ+δ) , n |Ax = e−n(µ+δ) , Ax:n| = (1 − e−n(µ+δ) ) .
µ+δ µ+δ µ+δ
Continuously increasing whole life insurance: bt = t, t ≥ 0,
Z ∞
¡ ¢
I A x= tv t · t px µx+t dt.
0

Annually increasing whole life insurance: bt = dte, t ≥ 0, present value is denoted

by
∞
X Z k
¡ ¢
I A x= kv t · t px µx+t dt.
k=1 k−1

9
 n–year term continuously increasing whole life insurance: bt = t, 0 ≤ t ≤ n,
Z n
¡ ¢1
I A x:n| = tv t · t px µx+t dt.
0

n–year term annually increasing whole life insurance: bt = dte, 0 ≤ t ≤ n,

n
X Z k
¡ ¢1
I A x:n| = kv t · t px µx+t dt.
k=1 k−1

Continuously decreasing life insurance: bt = n − t, 0 ≤ t ≤ n,

Z n
¡ ¢1
D A x:n| = (n − t)v t · t px µx+t dt.
0

Annually decreasing life insurance: bt = dn − te, 0 ≤ t ≤ n,

n
X Z k
¡ ¢1
D A x:n| = (n + 1 − k)v t · t px µx+t dt.
k=1 k−1

Assuming a uniform distribution of deaths:

i 1 i i i
Ax = Ax , Ax:n| = A1x:n| , n |Ax = · n |Ax , Ax:n| = A1x:n| + Ax:n| 1
,
δ δ δ δ
i (m)
i 1 i (m) i
A(m)
x = (m)
A x , A 1 (m)
x:n| = (m) Ax:n| , n |Ax = (m) · n |Ax , Ax:n| = (m) A1x:n| + Ax:n|
1
.
i i i i

5 Life annuities.
due annuities present value APV
whole life Ÿx = äKx | = 1−Zd
x
äx = 1−Ad
x

n
n–year deferred life insurance n |Ÿx = v äKx −n| I(Kx > n) n |äx = n Ex äx+n
1−Z 1−A
n–year term Ÿx:n| = ämin(Kn ,n)| = dx:n| äx:n| = dx:n|

immediate annuities present value APV

whole life Yx = aKx −1| = v−Z
d
x
ax = v−Ad
x

n
n–year deferred life insurance n |Yx = v aKx −n−1| I(Kx > n + 1) n |ax = n Ex · ax+n
v−Zx:n+1| v−Ax:n+1|
n–year term Yx:n| = amin(Kx −1,n)| = d
ax:n| = d

continuous annuities present value APV

whole life Y x = aTx | = 1−Z
δ
x
ax = 1−Aδ
x

n
n–year deferred life insurance n |Y x = v aTx −n| I(Tx > n) n |ax = n Ex · ax+n
1−v min(Tx ,n) 1−Ax:n|
n–year term Y x:n| = amin(Tx ,n)| = δ
ax:n| = δ

10
Discrete whole life due annuity:
∞
1 − Zx 1 − Ax X k 2
Ax − A2x
Ÿx = äKx | = , äx = = v k px , Var(Ÿx ) = , äx = 1 + vpx äx+1 .
d d k=0
d2
Whole life immediate annuity:
∞
v − Zx v − Ax X k
Yx = aKx −1| = Ÿx − 1 = , ax = = v k px ,
d d k=1
2
Ax − A2x
Var(Yx ) = , ax = vpx äx+1 = vpx (1 + ax+1 ).
d2
Whole life continuous annuity:
Z ∞ 2 2
1 − Zx 1 − Ax t Ax − Ax
Y x = aTx | = , ax = = v · t px dt, Var(Y x ) = .
δ δ 0 δ2
n–year deferred discrete due annuity:
∞
X
n
n |Ÿx = v äKx −n| I(Kx > n), n |äx = v k · k px = n Ex äx+n .
k=n

n–year deferred discrete immediate annuity:

n |Yx = n+1 |Ÿx , n |ax = n+1 |äx = vpx · n−1 |ax+1 .

n–year deferred continuous annuity:
Z ∞
n
n |Y x = v aTx −n| I(Tx > n), n |ax = v t · t px dt = n Ex · ax+n .
n
n–year term due discrete annuity:
X n−1
1 − Zx:n| 1 − Ax:n|
Ÿx:n| = ämin(Kn ,n)| = , äx:n| = v k k px = ,
d k=0
d
2
Ax:n| − (Ax:n| )2
Var(Ÿx:n| ) = , äx:n+m| = äx:n| + n Ex · äx+n:m| ,
d2
äx = äx:n| + n |äx = äx:n| + n Ex äx+n .
n–year term discrete immediate annuity:
v − Zx:n+1|
Yx:n| = amin(Kx −1,n)| = Ÿx:n+1| − 1 = ,
d
Xn
v − Ax:n+1|
ax:n| = äx:n+1| − 1 = v k · k px =
k=1
d
2
Ax:n+1| − (Ax:n+1| )2
Var(Yx:n| ) = ,
d2
ax = n |ax + ax:n| = n |ax + n Ex ax+n ,

11
 n–year term continuous annuity:
Z n
1 − v min(Tx ,n) 1 − Z x:n| 1 − Ax:n|
Y x:n| = amin(Tx ,n)| = = , ax:n| = v s s px ds = ,
δ δ 0 δ
2
Ax:n| − (Ax:n| )2
Var(Y x:n| ) = , ax:n+m| = ax:n| + n Ex · ax+n:m| , ax = ax:n| + n |ax .
δ2
Under constant force of mortality:

1 1+i 1 vpx 1 − qx e−(δ+µ) 1

äx = = = −(δ+µ)
, ax = = = −(δ+µ)
, ax = .
1 − vpx qx + i 1−e 1 − vpx qx + i 1−e µ+δ
Annuities paid m times a year.

For a whole life unity annuity–due to (x) paid m times a year:

∞
1 X k
(m) (m) 2 (m) (m)
1 − Zx 1 − Ax Ax − (Ax )2
Ÿx(m) = (m)
, ä(m)
x = = vm · k px , Var(Ÿx(m) ) = .
d d(m) m k=0 m (d(m) )2

For a whole life unity annuity–immediate to (x) paid m times a year:

(m)
1 v 1/m − Zx
Yx(m) = Ÿx(m)
− = ,
m d(m)
∞
1 X k
(m)
1 v 1/m − Ax
a(m)
x
(m)
= äx − = = vm · k px ,
m d(m) m k=1 m

2 (m) (m)
Ax − (Ax )2
Var(Yx(m) ) = .
(d(m) )2
For a n–year unity annuity–due to (x) paid m times a year:
(m) (m) nm−1
(m)
1 − Zx:n| (m)
1 − Ax:n| 1 X 1
Ÿx:n| = , äx:n| = = vm · k px ,
d(m) d(m) m k=0 m

(m)
(m)
Var(Zx:n| )
Var(Ÿx:n| ) = .
(d(m) )2
For a n–year unity annuity–due to (x) paid m times a year:
(m) (m) nm−1 (m)
(m)
1 − Zx:n| (m)
1 − Ax:n| 1 X 1 (m)
Var(Zx:n| )
Ÿx:n| = , äx:n| = = vm · k px , Var(Ÿx:n| ) = .
d(m) d(m) m k=0 m (d(m) )2

For a n–year unity annuity–immediate to (x) paid m times a year:

(m) (m) 1 1 1 (m) (m) 1 1

Yx:n| = Ÿx:n| − + Zx:n| , ax:n| = äx:n| − + · n Ex .
m m m m

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 For a n–year deferred unity annuity–due to (x) paid m times a year:
(m) (m) ∞
1 X k
1 1
(m)
Zx:n| − n |Zx (m)
Ax:n| − n |Ax (m)
n |Ÿx = , n |äx = = vm · k px = n Ex · äx+n ,
d(m) d(m) m k=nm m

(m) (m) (m)

ä(m)
x = äx:n| + n |ä(m)
x = äx:n| + n Ex äx+n .

For a n–year deferred unity annuity–immediate to (x) paid m times a year:

(m) 1 (m) 1
n |Yx = n |Ÿx(m) − 1
Zx:n| , n |a(m)
x = n Ex · ax+n = n |ä(m)
x − n Ex ,
m m
(m) (m) (m)
a(m)
x
(m)
= ax:n| + n |ax = ax:n| + n Ex ax+n .

Under an uniform distribution of deaths within each year:

i i
1 − i(m) Ax (m) 1 v 1/m − i(m) Ax 1 − δi Ax
ä(m)
x = (m)
, ax = äx − = , ax = .
d(m) m d(m) δ

6 Benefit Premiums.
Fully discrete insurance

Whole life insurance:

µ ¶
Kx P P
Lx = v − P äKx | = Zx − P Ÿx = Zx − P Ÿx = Zx − , 1+
d d
µ ¶
P P
E[Lx ] = Ax − P äx = Ax 1 + − ,
d d
µ ¶2 µ ¶2
P P ¡2 ¢
Var(Lx ) = 1 + Var(Zx ) = 1 + Ax − Ax 2 .
d d

Under the equivalence principle:

Ax dAx 1
Px = = = − d,
äx 1 − Ax äx
2
Ax − Ax 2 2
Ax − Ax 2 Ax
Var(Lx ) = 2 = 2 , t Px = .
(1 − Ax ) (däx ) äx:t|

n–year term insurance:

1 − Zx:n|
1
L1x:n| = Zx:n| 1
− P Ÿx:n| = Zx:n| −P ,
d
1
A1x:n| A1x:n|
Px:n| = P (A1x:n| ) = 1
, t Px:n| = P (t A1x:n| ) = .
äx:n| äx:t|

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 n–year pure endowment:

1 1 1 1 − Zx:n|
Lx:n| = Zx:n| − P Ÿx:n| = Zx:n| −P ,
d
1 1
Ax:n| Ax:n|
1
Px:n|1 = P (Ax:n| )= 1
, t Px:n|1 = P (t Ax:n| )= .
äx:n| äx:t|

n–year endowment:
µ ¶
min(n,Kx ) 1 − Zx:n| P P
Lx:n| = v − P ämin(Kx ,n)| = Zx:n| − P Ÿx:n| = Zx:n| − P = 1+ Zx:n| − ,
d d d
µ ¶2 µ ¶2
P P ¡2 ¢
Var(Lx:n| ) = 1 + Var(Zx:n| ) = 1 + Ax:n| − (Ax:n| )2 ,
d d
Ax:n| Ax:n|
Px:n| = P (Ax:n| ) = , t Px:n| = P (t Ax:n| ) = ,
äx:n| äx:t|
µ ¶
Px:n| 2 ¡2 ¢ 2 Ax:n| − Ax:n| 2 2
Ax:n| − Ax:n| 2
Var(Lx:n| ) = 1 + Ax:n| − Ax:n| 2 = ¡ ¢2 = ¡ ¢2 .
d 1 − Ax:n| däx:n|

n–year deferred insurance:

n |Ax n |Ax
n |Zx − P Ÿx , P (n |Ax ) = , t P (n |Ax ) = .
äx äx:t|

Properties:
1
Px:n| = Px:n| + Px:n|1 , n Px = Px:n|
1
+ Px:n|1 Ax+n .

Semicontinuous annual benefit premiums

Whole life insurance:

Ax Ax
P x = P (Ax ) = , t P x = t P (Ax ) = .
ax ax:t|

n–year term insurance:

1 A1x:n| 1 1
A1x:n|
P x:n| = , t P x:n| = t P (Ax:n| ) =
ax:n| ax:t|

n–year pure endowment:

1 1
1 1
Ax:n| 1 1
Ax:n|
P x:n| = P (Ax:n| ) = , t P x:n| = t P (Ax:n| ) = .
ax:n| ax:t|

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n–year endowment:
Ax:n| Ax:n|
P x:n| = P (Ax:n| ) = , t P x:n| = t P (Ax:n| ) = .
ax:n| ax:t|
n–year deferred insurance:
n |Ax n |Ax
P (n |Ax ) = , t P (n |Ax ) =
ax:n| ax:n|

Fully continuous insurance

Whole life insurance:
µ ¶
Tx 1 − Zx P P
L(Ax ) = v − P aTx | = Z x − P Y x = Z x − = Zx 1 + − ,
δ δ δ
µ ¶2 µ ¶2
P P ¡2 ¢
Var(L(Ax )) = 1 + Var(Z x ) = 1 + Ax − Ax 2 ,
δ δ
Ax δAx 1 Ax
P (Ax ) = = = − δ, t P (Ax ) = .
ax 1 − Ax ax ax:t|
µ ¶2
P (Ax ) ¡2 ¢ 2 Ax − Ax 2 2
Ax − Ax 2
Var(L(Ax )) = 1 + Ax − Ax 2 = = .
δ (1 − Ax )2 (δax )2
n–year term insurance:
1 1
1 1 Ax:n| 1 Ax:n|
L= Z x:n| − P Y x:n| , P (Ax:n| ) = , t P (Ax:n| ) = .
ax:n| ax:t|
n–year pure endowment:
1 1
1 1 Ax:n| 1 Ax:n|
L= Z x:n| − P Y x:n| , P (Ax:n| ) = , t P (Ax:n| ) = .
ax:n| ax:t|
n–year endowment:
µ ¶
1 − Z x:n| P P
L = Z x:n| − P Y x:n| = Z x:n| − P = 1+ − Z x:n| ,
δ δ δ
µ ¶³ ´
P 2
¡ ¢2
Var(L) = 1 + Ax:n| − Ax:n| ,
δ
2
Ax:n| 1 − δax:n| δAx:n| Ax:n| − Ax:n| 2 Ax:n|
P (Ax:n| ) = = = , Var(L) = ¡ ¢2 , t P (Ax:n| ) = .
ax:n| ax:n| 1 − Ax:n| 1 − Ax:n| ax:t|

n–year deferred insurance:

n |Ax
L = n |Z x − P Y x:n| , P (n |Ax ) = .
ax:n|

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 n–year deferred annuities

n–year deferred due annuity:

n |äx
L = n |Ÿx − P Ÿx:n| , P (n |äx ) = .
äx:n|

n–year deferred immediate annuity:

n |ax
L = n |Yx − P Ÿx:n| , P (n |ax ) = .
äx:n|

n–year deferred continuous annuity funded discretely:

n |ax
L = n |Y x − P Ÿx:n| , P (n |ax ) = .
äx:n|

n–year deferred continuous annuity funded continuously:

n |ax
L = n |Y x − P Y x:n| , P (n |ax ) = .
äx:n|

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