Non mean reverting affine processes for stochastic mortality

Elisa Luciano and Elena Vigna ()

ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research

Abstract: In this paper we use doubly stochastic processes (or Cox processes) in order to model the random evolution of mortality of an individual. These processes have been widely used in the credit risk literature in modelling default arrival, and in this context have proved to be quite flexible, especially when the intensity process is of the affine class. We investigate the applicability of affine processes in describing the individual's intensity of mortality, and provide a calibration to the Italian and UK populations. Results from the calibration seem to suggest that, in spite of their popularity in the financial context, mean reverting processes are not suitable for describing the death intensity of individuals. On the contrary, affine processes whose deterministic part increases exponentially seem to be appropriate. As for the stochastic part, negative jumps seem to do a better job than diffusive components. Stress analysis and analytical results indicate that increasing the randomness of the intensity process results in improvements in survivorship.

Keywords: doubly stochastic processes (Cox processes); stochastic mortality; affine processes (search for similar items in EconPapers)
JEL-codes: G22 J11 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2005-03
New Economics Papers: this item is included in nep-fin and nep-hea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Related works:
Working Paper: Non mean reverting affne processes for stochastic mortality (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:icr:wpmath:4-2005

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