Life Anuities with Stochastic Survival Probabilities: A Review

Michel Denuit ()
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Michel Denuit: Université Catholique de Louvain

Methodology and Computing in Applied Probability, 2009, vol. 11, issue 3, 463-489

Abstract: Abstract An insurance company selling life annuities has to use projected life tables to describe the survival of policyholders. Such life tables are generated by stochastic processes governing the future path of mortality. To fix the ideas, the standard Lee-Carter model for mortality projection is adopted here. In that context, the paper purposes to examine the consequences of working with random survival probabilities. Various stochastic inequalities are derived, showing that the risk borne by the annuity provider is increased compared to the classical independent case. Moreover, the type of dependence existing between the insured life times is carefully examined. The paper also deals with the computation of ruin probabilities and large portfolio approximations.

Keywords: Lee-Carter model; Mortality projection; Association; MTP2; Stochastic orders; Ruin probability; Prudential life table; Securitization; Comonotonicity; 62P05 (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1007/s11009-008-9076-4

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