Hi everyone I seem to understand the difference that the other one is independent when there is only one decrement and the other when there are multiple decrements at play. When can these be assumed to be equal? For example in a pricing situation where you have potential death or surrender at play. Can I just assume they are equal and will this be correct? As I am assuming surrender has no impact on death but death has impact on surrender. Please assist and clarity areas where I might be getting it wrong.
Hi Nyaman, Sorry for the late reply. I think it's all about timing. Typically in the profit testing chapters our assumption is that surrenders can only occur at the end of each year. Hence, during the year itself death is the only decrement acting and hence the independent and dependent probabilities of death are essentially the same. However, the independent and dependent surrender probabilities are not since there might be a 10% chance of surrender at the end of the year (the independent probability) but the dependent probability would be 10% * (1-qx) ie in order for the life to surrender they must have survived mortality during the year. I believe this ties up with your thinking above but just wanting to confirm. Hope this helps. Joe
