Modelling stochastic mortality for dependent lives

Elisa Luciano, Jaap Spreeuw and Elena Vigna

No 43, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: Stochastic mortality, i.e. modelling death arrival via a jump process with stochastic intensity, is gaining increasing reputation as a way to rep- resent mortality risk. This paper represents a .rst attempt to model the mortality risk of couples of individuals, according to the stochastic inten- sity approach. We extend to couples the Cox processes set up, namely the idea that mortality is driven by a jump process whose intensity is itself a stochastic process, proper of a particular generation within each gen- der. Dependence between the survival times of the members of a couple is captured by an Archimedean copula. We also provide a methodology for fitting the joint survival function by working separately on the (analytical) copula and the (analytical) mar- gins. First, we calibrate and select the best fit copula according to the methodology of Wang and Wells (2000b) for censored data. Then, we provide a sample-based calibration for the intensity, using a time- homogeneous, non mean-reverting, affine process: this gives the marginal survival functions. By coupling the best fit copula with the calibrated mar- gins we obtain a joint survival function which incorporates the stochastic nature of mortality improvements. Several measures of time dependent association can be computed out of it. We apply the methodology to a well known insurance dataset, using a sample generation. The best fit copula turns out to be a Nelsen one, which implies not only positive dependency, but dependency increasing with age.

Keywords: stochastic mortality; bivariate mortality; copula functions; longevity risk. (search for similar items in EconPapers)
JEL-codes: G22 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2007
New Economics Papers: this item is included in nep-ecm, nep-hea and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Modelling stochastic mortality for dependent lives (2008)
Working Paper: Modelling Stochastic Mortality for Dependent Lives (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:43

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