Inference for the Lee-Carter Model With An AR(2) Process

Deyuan Li, Chen Ling, Qing Liu and Liang Peng ()
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Deyuan Li: Fudan University
Chen Ling: Georgia State University
Qing Liu: Jiangxi University of Finance and Economics
Liang Peng: Georgia State University

Methodology and Computing in Applied Probability, 2022, vol. 24, issue 2, 991-1019

Abstract: Abstract Researchers in studying longevity risk often employ the Lee-Carter model with a unit root AR(1) process for unobserved mortality indexes. When one models the mortality index by a stationary AR(1) process, the widely used two-step inference in Lee and Carter (1992) is inconsistent. Some mortality datasets reject the unit root hypothesis. This paper develops consistent statistical inferences for a modified Lee-Carter model using an AR(2) process to model unobserved mortality indexes. It also provides a simulation study to examine their finite sample performance before applying them to the US mortality rates.

Keywords: AR(2) model; Lee-Carter model; Mortality rates; Unit root (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11009-021-09898-y

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