AM1.234 - Introduction to Actuarial Mathematics Chapter 1...

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Introduction to Actuarial Mathematics Chapter 1 – The Life Table Introduction (section 1.1) American Benjamin Franklin once said: “There is nothing certain in life except death and taxes” However, it is equally true that for any individual, there is nothing so uncertain as the time of one’s death
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But, it is known, with relative certainty, that out of a large group of individuals chosen at random, some will die within a certain period of time However, we do not know which actual individuals in the group will die
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We can estimate the probability of death or survival We can use large group data, along with probability theory to estimate the probability that an individual will die (or survive) within a given period of time when we combine the probability of a future event occurring with an interest rate, we enter the world of actuarial science
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We will be dealing with financial products such as life annuities and life insurance The structure of these products depends on 3 key elements: 1. The probability of death/survival of a given individual over a given period of time 2. The interest rate that can be earned on invested money 3. The rate of expense incurred in the sale and maintenance of a life annuity or life insurance product
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Probability plays an important role in the study of actuarial mathematics it is used in the construction of life tables , which are tables of the probability of dying/surviving over 1 year periods for individuals of various ages life tables are also used to calculate how much an insurance company can charge its customers when selling a life annuity or life insurance product
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Probability (section 1.2) You can read section 8.1 of the Zima – Brown−Kopp textbook for more background Classical Definition of Probability Suppose you have an event that is either a success or failure suppose this event can be successful in h -ways and fail in f -ways, all of which are equally likely Then, p = probability of success = q = probability of failure =
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We see that, p + q = This definition of probability can be used
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This note was uploaded on 04/14/2010 for the course ACSCI 2053 taught by Professor Kopp during the Spring '09 term at UWO.

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AM1.234 - Introduction to Actuarial Mathematics Chapter 1...

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