S
studentactuary15
Member
Hi,
I understand that having the mortality higher by 5 years in method 2 raises the cost of the option. I'm confused why the other assumption is not mentioned as the fact that method 1 assumes IF policies all will take the option and method 2 says half will. I thought this would raise the cost by a lot too? In the solutions it mentions that the remaining 50% in method 2 is assumed to have standard ultimate mortality (rather than select type) - but this is very different to the other point I wrote in bold.
I would appreciate some help and thank you in advance.
I understand that having the mortality higher by 5 years in method 2 raises the cost of the option. I'm confused why the other assumption is not mentioned as the fact that method 1 assumes IF policies all will take the option and method 2 says half will. I thought this would raise the cost by a lot too? In the solutions it mentions that the remaining 50% in method 2 is assumed to have standard ultimate mortality (rather than select type) - but this is very different to the other point I wrote in bold.
I would appreciate some help and thank you in advance.