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2 - Survival models

David C. M. Dickson
Affiliation:
University of Melbourne
Mary R. Hardy
Affiliation:
University of Waterloo, Ontario
Howard R. Waters
Affiliation:
Heriot-Watt University, Edinburgh
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Summary

Summary

In this chapter we represent the future lifetime of an individual as a random variable, and show how probabilities of death or survival can be calculated under this framework. We then define an important quantity known as the force of mortality, introduce some actuarial notation, and discuss some properties of the distribution of future lifetime. We introduce the curtate future lifetime random variable. This is a function of the future lifetime random variable which represents the number of complete years of future life. We explain why this function is useful and derive its probability function.

The future lifetime random variable

In Chapter 1 we saw that many insurance policies provide a benefit on the death of the policyholder. When an insurance company issues such a policy, the policyholder's date of death is unknown, so the insurer does not know exactly when the death benefit will be payable. In order to estimate the time at which a death benefit is payable, the insurer needs a model of human mortality, from which probabilities of death at particular ages can be calculated, and this is the topic of this chapter.

We start with some notation. Let (x) denote a life aged x, where x ≥ 0. The death of (x) can occur at any age greater than x, and we model the future lifetime of (x) by a continuous random variable which we denote by Tx.

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Publisher: Cambridge University Press
Print publication year: 2009

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