A flaw in actuarial exposed-to-risk theory

Abstract

Conventional actuarial exposed-to-risk procedures to compute a death probability qx have been based on assumptions like a “uniform distribution of deaths” or on the so-called “Balducci hypothesis”. The latter has been advocated for its assumed ability to lead to simple computations. Unfortunately, these procedures have been derived by a faulty argument. Correct reasoning leads to much more complicated formulas, which makes the conventional procedures loose their appeal. Computations based on the assumption of a constant force of mortality in each age interval are suggested as a classical and simple alternative.

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