Hi, Section 9.6 of Chapter 5 of the Course Notes (pg 41 of Chapter 5) describes how to allow for a survival benefit. The first three lines read as follows: Suppose the contract provides for a benefit at the end of a policy year t to t+1. By convention, the present value of this will have been included in t_V but will fall outside the computation of t+1_V. Why will it fall outside the computation of t+1_V? Any explanations will be greatly appreciated. Thanks
Isnt this because we need to provide for the benefit to be paid at end of yr t+1 in t_V and hence it falls outside t+1_V?
But if it is provided for in t_V, will it not also be provided for in the computation of t+1_V for the following year?
I understood this thro' the recursive relationship for reserves..... Maybe you could look at it this way, too..... t+1_V includes t_V + (1+i). ie., it includes t_V accumulated for a period of 1 yr i%. So you needn't include whats in t_V again in t+1_V.
The reserve at time t+1 is held for the year [t+1, t+2) So, any survival benefit, paid at time t+1, is happening at the end of the year [t, t+1) and, as such, will need to be reserved for at time t John
