Mortality Regimes and Pricing

Andreas Milidonis (), Yijia Lin and Samuel Cox

North American Actuarial Journal, 2011, vol. 15, issue 2, 266-289

Abstract: Mortality dynamics are characterized by changes in mortality regimes. This paper describes a Markov regime-switching model that incorporates mortality state switches into mortality dynamics. Using the 1901-2005 U.S. population mortality data, we illustrate that regime-switching models can perform better than well-known models in the literature. Furthermore, we extend the 1992 Lee-Carter model in such a way that the time-series common risk factor to all cohorts has distinct mortality regimes with different means and volatilities. Finally, we show how to price mortality securities with this model.

Date: 2011
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Citations: View citations in EconPapers (34)

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DOI: 10.1080/10920277.2011.10597621

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