From regulatory life tables to stochastic mortality projections: The exponential decline model

Michel Denuit and Julien Trufin

Insurance: Mathematics and Economics, 2016, vol. 71, issue C, 295-303

Abstract: Often in actuarial practice, mortality projections are obtained by letting age-specific death rates decline exponentially at their own rate. Many life tables used for annuity pricing are built in this way. The present paper adopts this point of view and proposes a simple and powerful mortality projection model in line with this elementary approach, based on the recently studied mortality improvement rates. Two main applications are considered. First, as most reference life tables produced by regulators are deterministic by nature, they can be made stochastic by superposing random departures from the assumed age-specific trend, with a volatility calibrated on market or portfolio data. This allows the actuary to account for the systematic longevity risk in solvency calculations. Second, the model can be fitted to historical data and used to produce longevity forecasts. A number of conservative and tractable approximations are derived to provide the actuary with reasonably accurate approximations for various relevant quantities, available at limited computational cost. Besides applications to stochastic mortality projection models, we also derive useful properties involving supermodular, directionally convex and stop-loss orders.

Keywords: Life tables; Risk measures; Longevity risk; Comonotonicity; Life annuity; Supermodular order; Directionally convex order; Increasing convex order (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:71:y:2016:i:c:p:295-303

DOI: 10.1016/j.insmatheco.2016.09.015

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