MacTutor
Johan de Witt - The first calculation on the valuation of life annuities
Livia Daxenberger
Introduction
The 17th century marked a period of prosperity in the history of what we know today as the Netherlands. During the "Dutch Golden Age", trade, military power, art, and politics flourished to make the Netherlands one of the main global players of the time.
However, with the sudden growth of state debt and new European military conflicts looming, the state faced new challenges to acquire finances. Johan de Witt, a great statesman in the Netherlands during the mid-17th century - and the person of interest to this paper - presented to the ministers an argument to raise funds through the financial instrument of life annuities. He wrote a treatise with a precise calculation for the valuation of life annuities, which had been priced arbitrarily before that. This work can be seen as the first application of probabilistic statements to a political problem, marking the first use of financial mathematics.
This paper aims at clarifying the importance and impact of de Witt's statistical contributions. A short outline of the historical background and the nature of state finances in the Netherlands will illuminate why annuities were of such interest at the time. Thereafter, I will elaborate on the annuities market and investigate its relevance and value as a financial market for the state. This will build the context in which Jan de Witt grew up and became a valuable leader of the Netherlands, and explain his mathematical interests. I will explore his mathematical work on annuity calculations and concludingly, its impact on other mathematicians, giving examples of others endeavouring in the field of insurance statistics.
However, with the sudden growth of state debt and new European military conflicts looming, the state faced new challenges to acquire finances. Johan de Witt, a great statesman in the Netherlands during the mid-17th century - and the person of interest to this paper - presented to the ministers an argument to raise funds through the financial instrument of life annuities. He wrote a treatise with a precise calculation for the valuation of life annuities, which had been priced arbitrarily before that. This work can be seen as the first application of probabilistic statements to a political problem, marking the first use of financial mathematics.
This paper aims at clarifying the importance and impact of de Witt's statistical contributions. A short outline of the historical background and the nature of state finances in the Netherlands will illuminate why annuities were of such interest at the time. Thereafter, I will elaborate on the annuities market and investigate its relevance and value as a financial market for the state. This will build the context in which Jan de Witt grew up and became a valuable leader of the Netherlands, and explain his mathematical interests. I will explore his mathematical work on annuity calculations and concludingly, its impact on other mathematicians, giving examples of others endeavouring in the field of insurance statistics.