Modelling mortality dependence: An application of dynamic vine copula

Rui Zhou and Min Ji

Insurance: Mathematics and Economics, 2021, vol. 99, issue C, 241-255

Abstract: Vine copula, constructed from bivariate copulas, provides great flexibility in modelling complex high-dimensional dependence. When applied to multi-population mortality modelling, vine copula yields significant improvement over traditional multivariate copulas. In this paper, we propose to capture time-varying features in mortality dependence with dynamic regular vine (R-vine) copula which is built from bivariate copulas with time-varying dependence parameters. We develop two dependence dynamics for R-vine copulas and illustrate the selection and estimation of dynamic R-vine copulas using mortality data from eight populations. The estimated R-vine copulas using the proposed dependence dynamics are shown to yield better goodness of fit than both static and regime-switching vine copulas. We further demonstrate the simulation of mortality paths using dynamic R-vine copulas and examine the impact of vine copula choice on the assessed effectiveness of longevity hedge.

Keywords: Vine copula; Time-varying dependence; Mortality dependence; Multi-population mortality modelling; Longevity hedge (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:99:y:2021:i:c:p:241-255

DOI: 10.1016/j.insmatheco.2021.03.022

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