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Modeling Longevity Risk using Consistent Dynamics Affine Mortality Models

Rihab Bedoui and Islem Kedidi ()
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Rihab Bedoui: IHEC Sousse - IHEC
Islem Kedidi: LAREMFIQ - Laboratory Research for Economy, Management and Quantitative Finance - Institut des Hautes Etudes Commerciales (Université de Sousse)

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Abstract: Longevity Risk becomes an important challenge in the recent Year because of the decreases in the mortality rates and the rising in the life expectancy through the decades. In this article, we propose a consistent multi-factor dynamics affine mortality model to the longevity risk model-ing, we show that this model is an appropriate model to fit the historical mortality rates.To our Knowledge this is the first work that uses a consistent Mortality models to model USA Longevity risk.Indeed the multiple risk factors permitting applications not only to the hedge and price of the longevity risk but also in mortality derivatives and the general problems in the risk management .A state space presentation is used to estimate the model parameters through the kalman filter .To capture the effect of the size of the population sample we include a measurement error variance for each age. We evaluate 2-and 3-factor implementation of the model through the use of the USA mortality data, we employ Bootstrapping method to derive parameter estimated and the Consistent models prove the performance and the stability of the model. We show that the 3-factor independent model is the best model that can provide a better fit to our survivals curves and especially for the elderly persons

Keywords: consistent; multi-factor; Mortality model; Longevity Risk; Affine; Kalman filter (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-hea and nep-rmg
Date: 2018-01-08
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