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THE
UNIVERSITY
OF
HONG
KONG
DEPARTMENT
OF
STATISTICS
AND
ACTUARIAL
SCIENCE
STAT3801/3909
Advanced Life Contingencies
Tutorial 10 Problems
1. The mortality of
(
x
)
and
(
y
)
follows a common shock model with components
T
*
(
x
)
, T
*
(
y
)
and
Z.
•
T
*
(
x
)
, T
*
(
y
)
and
Z
are independent and have exponential distributions with respec-
tive forces
μ
1
, μ
2
and
λ.
•
The probability that
(
x
)
survives 1 year is 0.96.
•
The probability that
(
y
)
survives 1 year is 0.97.
•
λ
= 0
.
01
.
Calculate the probability that both
(
x
)
and
(
y
)
survives 5 years.
2. You want to calculate the expected present value of a last survivor whole life insurance
of 1 on
(
x
)
and
(
y
)
using multi-state methodology. You defined states as
•
State
0 =
both alive
•
State
1 =
only
(
x
)
alive
•
State
2 =
only
(
y
)
alive
•
State
3 =
neither alive
You assume:
•
Death benefits are payable at the moment of death.
•
The future lifetime of
(
x
)
and
(
y
)
are independent.
•
μ
01
x
+
t
:
y
+
t
=
μ
02
x
+
t
:
y
+
t
=
μ
13
x
+
t
:
y
+
t
=
μ
23
x
+
t
:
y
+
t
= 0
.
06
,
t
≥
0
•
μ
03
x
+
t
:
y
+
t
= 0
,
t
≥
0
•
δ
= 0
.
05
You later find out that the particular lives do not have independent future lifetimes.
While your model correctly projects the survival function of
(
x
)
and
(
y
)
,
a common
shock model should be used for their joint future lifetimes. Based on this, you realize
you should be using
μ
0
03
x
+
t
:
y
+
t
= 0
.
02
,
t
≥
0
.
(a) You now want to calculate the expected present value of a whole life insurance of
1 payable at the first death of
(
x
)
and
(
y
)
.
Calculate the expected present value
for the first-to-die benefit.
(b) Hence, calculate the expected present value of the last-to-die insurance, payable
at the moment of the second death.
(c) Calculate the probability that both have died by the end of year 3.
1
(
x
)
(
y
)
•
•
T
*
(
x
)
T
*
(
y
)
Z
•
T
*
(
x
)
T
*
(
y
)
Z
•
δ
t
P
(
t
)
t
= 1
,
2
,
3
,
4
,
5
.
t
= 0
,
1
,
2
,
3
,
4
.
π
N
π
Q
70
Q
70
=
0
.
022
0
.
025
0
.
028
Q
70
π
D
(
N
)
lim
N
→∞
p
[
D
(
N
)]
N
6
= 0
.
L
(
N
)
lim
N
→∞
p
[
L
(
N
)]
N
6
= 0
.
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Author:David S. Moore, William I. Notz, Michael A. Fligner
Publisher:W. H. Freeman
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Introduction to the Practice of Statistics
Statistics
ISBN:9781319013387
Author:David S. Moore, George P. McCabe, Bruce A. Craig
Publisher:W. H. Freeman