treating each death as "half a person"

Discussion in 'CT4' started by Hemant Rupani, Jan 25, 2015.

  1. Hemant Rupani

    Hemant Rupani Senior Member

    In CMP upgrade 2014/2015, Chapter-10 pg.no.11 ....
    I found a statement, "The approximation of treating each death as “half a person” can be justified mathematically if we assume Balducci Assumption."
    Why assume Balducci but not UDD?
     
  2. Hemant Rupani

    Hemant Rupani Senior Member

    We can assume any. Both are correct.

    'Deriving q via the actuarial estimate has always been a mixture of slightly inconsistent assumptions and methodology – which is one of the reasons why its importance has been downgraded in the course from 2015 onwards. The formula shown on page 11 is actually a simplification of the formal proof of the method – for example, the central exposed to risk is itself a function of the exact time of death of those d people who died during the year, so the equation is inconsistent. So if we are assuming that deaths occur half way through the year then the central etr figure should be altered as well. So yes, our notes could be more exact in this respect, but their function is not to provide you with the full proof (as it’s not required) but to try and give you something of an intuitive feel for the underlying methodology.



    If you REALLY want to see how the actuarial estimate is derived, then I’ve attached a copy of the relevant pages of the 2014 course notes. J If you have a look at this, I think you might be pleased that you don’t have to study and learn this! But honestly, this is not going to come up in the exam (only the Core Reading is examined, remember), so I wouldn’t worry about it.



    But I can certainly see your confusion, and we’ll make sure we have a look at this again when we review the course next year.



    Basically you don’t have to worry about how the Actuarial estimate is derived, EXCEPT that the Balducci assumption is required, and that this assumption is not very realistic (as it says in the CR).



    Hope that clears it up for you.

    Best wishes

    Robert'------ Robert Chadburn (ActEd Tutor)
    Clears the doubt.
     
    Last edited: Feb 2, 2015

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