Errata for Actuarial Mathematics for Life Contingent Risks

David C M Dickson, Mary R Hardy, Howard R Waters

Note: These errata refer to the rst printing of Actuarial Mathematics for Life Contingent Risks. Some corrections may have been incorporated in subsequent printings. Chapter 4 Page 84: Towards the bottom of the page the sentence that begins If we calculate q129 11 ... = should begin 12 If we calculate 1 q129 11 ...
12 12

Page 85: The second displayed equation should read v 1/12

1 12

q129 11 +
12

1 12

p129 11 A130
12

(12)

Page 100: Equation (4.33) should read = 1 A1 1 + j x:n i

Page 101: The nal sentence of Section 4.7 should read : Similarly, A[x]:n denotes the EPV of a benet of 1 payable at the end of the year of death within n years, of a newly selected life age x, or at age x + n if (x) survives. Page 106: The answers to Exercise 4.1 are: (a) 0.735942 (b) 0.012656 (c) 0.138719 1

Copyright 2011 D.C.M. Dickson, M.R.Hardy, H.R.Waters.

(d) 0.748974 Chapter 5 Page 132: In equation (5.40) g (0) should be g (0). Page 133: The three references to second and higher order derivatives should be replaced with third and higher order derivatives. Chapter 6 Page 149: Solution 6.5. Remove the select brackets for age 65 in the calculation of a[45]:20 , which should read a[45]:20 = a[45] l65 20 v a65 = 12.94092. l[45]

Page 175: The answer to Exercise 6.15(c) should be $3 369 626. Chapter 7 Page 212: Solution 7.12 part (b), 49.95 should be 0.0011471. Page 227: In Exercise 7.14(c), replace the display equation with d tV = [60]+t + dt
tV

[60]+t

for 0 < t < 20

Page 228: The solution to Exercise 7.2(e) should be $1 125.54 Page 229: The solution to Exercise 7.7(g), t = 10, should read t = 10 : $61 678.46 $76 070.54

Page 229: The solution to Exercise 7.10(d) should be $263.37/9=$29.26. Chapter 8 Page 254: All terms denoted Vk on this page should be denoted k V . The corrected page follows.

Copyright 2011 D.C.M. Dickson, M.R.Hardy, H.R.Waters.

We can achieve this by writing: d (0) = ( t V (0) tV dt and d (1) = ( t V (1) tV dt

th V (1) th V (0)

)/h + o(h)/h

)/h + o(h)/h

Putting these expressions into formulae (8.18) and (8.19), multiplying through by h, rearranging and ignoring terms which are o(h), gives the following two (approximate) equations:
th V (0)

= =

tV

(0)

(1 h) P h + h01 ( t V (1) t V (0) ) + h02 (S t V (0) ) x+t x+t (1 h) + Bh + h10 ( t V (0) t V (1) ) + h12 (S t V (1) ). x+t x+t

th V

(1)

tV

(1)

These equations, together with the starting values at time n the step size, h, and the premium rate, P , can be used to calculate successively:
nh V (0)

nh V

(1)

n2h V

(0)

n2h V

(1)

,...,

10 V

(0)

10 V

(1)

,...,

0V

(0)

(1) For n = 20, h = 1/12 and P = $5 500, we get

10 V (0)

= $18 084;

10 V

(1)

= $829 731;

0V

(0)

= $3 815

(2) For n = 20, h = 1/12 and P = $6 000, we get:

10 V (0)

= $14 226

10 V

(1)

= $829 721;

0V

(0)

= $2 617

(ii) Let P be the premium calculated using the principle of equivalence. Then for this premium we have by denition 0 V (0) = 0. Using the results in part (i) and assuming (0) is (approximately) a linear function of P , we have: 0V P 5 500 0 3 815 6 000 5 500 2 617 3 815 So that P $5 797. Page 279: In Exercise 8.1 the labels on the transition intensities have been ipped. The intensities should read 01 = 105 x for all x and 02 = A + Bcx x 3

Copyright 2011 D.C.M. Dickson, M.R.Hardy, H.R.Waters.

Page 280: In Exercise 8.2(b), add payable continuously at the end of the third bullet, describing the disability income benet. Page 281: Exercise 8.4(a) should read Write down the Kolmogorov forward dierential equation for t p00 in the joint life model illustrated in Figure 8.10. xy Page 285: In Exercise 8.17(c) the rst equation should be
t1 m

pxy

t m

pxy =

1 m 2t + 1 (1 pxy ) qx qy m m2

Page 286: In Exercise 8.18 (a), the rst line of the question should read Show that, for independent lives (x) and (y) Page 288: The solution to Exercise 8.2(b)(i) should be $206.68. Page 289: The solution to Exercise 8.15 (b) should be $76 846, and to (c) should be $73 942. Chapter 9 Page 322: In Exercise 9.8 replace the rst paragraph with the following: In a pension plan, a member who retires before age 65 has their pension reduced by an actuarial reduction factor. The factor is expressed as a rate oer month, k, say, and is then applied to reduce the members pension to ((1 t k)B where B is the accrued benet, based on service and nal average salary at the date of early retirement. Page 322: In Exercise 9.10, replace the sentence His salary in the year to valuation is $40 000. with His salary in the year following valuation is projected to be $40 000. Page 323: In Exercise 9.11 replace the bullet point starting She could retire at 60.5... with the following: She could retire at 60.5, with an actuarial reduction applied to her pension of 0.5% per month up to age 62. That is, if her accrued benet at retirement, based on her salary in the 2 years prior to retirement is B, her reduced pension would be (1 18 0.005)B. Page 325: The answer to Exercise 9.8(a) is 0.43% and to Exercise 9.8(b) is 0.53%. Page 325: The answers to Exercise 9.11 are (a) 41.3% 47.6% 52.1% 4

Copyright 2011 D.C.M. Dickson, M.R.Hardy, H.R.Waters.

(b) $383 682 (c) $123 143. Chapter 10

$406 686

$372 321

Page 343: In Solution 10.5(a) the expected present value of the loss should be 1 10 000 15 E50 a + P (I A)50:15 P a50:15 65 Page 349 : Exercise 10.4(a) should read: The coecient of variation for a random variable X is dened as the ratio of the standard deviation of X to the mean of X. Let X denote the aggregate loss on a portfolio, so that X = N Xj . Assume that, for each j, Xj > 0 and Xj has nite j=1 mean and variance. Show that, if the portfolio risk is diversiable, then the limiting value of the coecient of variation of aggregate loss X, as N 0, is zero. Page 352: In the solution to Exercise 10.2, the forward rates in the table should be 0.0400, 0.0441 and 0.0468 (the numbers given in the text are 1+f (k, k + 1)). Chapter 11 Page 373: The answers to Exercise 11.3 are: (a) (330.00, 60.16, 293.07, 193.34, 319.92) (b) (330.00, 60.16, 290.73, 190.07, 311.36) (c) $288.64 (d) 7.8% (e) 3 years (f) No (The IRR is 42%). (g) Yes Appendix B Page 478: In formula (B.1) f (a) and f (b) should be replaced with f (a) and f (b). References to second and higher order derivatives should be changed to third and higher order derivatives. Page 478: In three cases the term left-hand side should be replaced by the term right-hand side. 5

Copyright 2011 D.C.M. Dickson, M.R.Hardy, H.R.Waters.