A Quantitative Comparison of the Lee-Carter Model under Different Types of Non-Gaussian Innovations

Chou-Wen Wang, Hong-Chih Huang and I-Chien Liu
Additional contact information
Chou-Wen Wang: Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, Kaohsiung, Taiwan
Hong-Chih Huang: Department of Risk Management and Insurance, Research Fellow of Risk and Insurance Research Center, National Chengchi University, Taipei, Taiwan
I-Chien Liu: Department of Risk Management and Insurance, National Chengchi University, Taipei, Taiwan

The Geneva Papers on Risk and Insurance - Issues and Practice, 2011, vol. 36, issue 4, 675-696

Abstract: In the classical Lee-Carter model, the mortality indices that are assumed to be a random walk model with drift are normally distributed. However, for the long-term mortality data, the error terms of the Lee-Carter model and the mortality indices have tails thicker than those of a normal distribution and appear to be skewed. This study therefore adopts five non-Gaussian distributions—Student’s t-distribution and its skew extension (i.e., generalised hyperbolic skew Student’s t-distribution), one finite-activity Lévy model (jump diffusion distribution), and two infinite-activity or pure jump models (variance gamma and normal inverse Gaussian)—to model the error terms of the Lee-Carter model. With mortality data from six countries over the period 1900–2007, both in-sample model selection criteria (e.g., Bayesian information criterion, Kolmogorov–Smirnov test, Anderson–Darling test, Cramér–von-Mises test) and out-of-sample projection errors indicate a preference for modelling the Lee-Carter model with non-Gaussian innovations.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.palgrave-journals.com/gpp/journal/v36/n4/pdf/gpp201120a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/gpp/journal/v36/n4/full/gpp201120a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:gpprii:v:36:y:2011:i:4:p:675-696

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41288/PS2

Access Statistics for this article

The Geneva Papers on Risk and Insurance - Issues and Practice is currently edited by Christophe Courbage

More articles in The Geneva Papers on Risk and Insurance - Issues and Practice from Palgrave Macmillan, The Geneva Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().