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The Volatility of Mortality

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Author Info

  • Bauer Daniel

    (Georgia State University)

  • Börger Matthias

    (Ulm University, Germany)

  • Ruß Jochen

    (Institute of Finance and Actuarial Science at Ulm, Germany)

  • Zwiesler Hans-Joachim

    (Ulm University, Germany)

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    Abstract

    The use of forward models for the future development of mortality has been proposed by several authors. In this article, we specify adequate volatility structures for such models. We derive a Heath-Jarrow-Morton drift condition under different measures. Based on demographic and epidemiological insights, we then propose two different models with a Gaussian and a non-Gaussian volatility structure, respectively. We present a Maximum Likelihood approach for the calibration of the Gaussian model and develop a Monte Carlo Pseudo Maximum Likelihood approach that can be used in the non-Gaussian case. We calibrate our models to historic mortality data and analyze and value certain longevity-dependent payoffs within the models.

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    File URL: http://www.degruyter.com/view/j/apjri.2008.3.1/apjri.2008.3.1.1035/apjri.2008.3.1.1035.xml?format=INT
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    Bibliographic Info

    Article provided by De Gruyter in its journal Asia-Pacific Journal of Risk and Insurance.

    Volume (Year): 3 (2008)
    Issue (Month): 1 (September)
    Pages: 1-29

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    Handle: RePEc:bpj:apjrin:v:3:y:2008:i:1:n:10

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/apjri

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    Cited by:
    1. Blackburn, Craig & Sherris, Michael, 2013. "Consistent dynamic affine mortality models for longevity risk applications," Insurance: Mathematics and Economics, Elsevier, vol. 53(1), pages 64-73.
    2. Bauer, Daniel & Börger, Matthias & Ruß, Jochen, 2010. "On the pricing of longevity-linked securities," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 139-149, February.
    3. Gao, Quansheng & Hu, Chengjun, 2009. "Dynamic mortality factor model with conditional heteroskedasticity," Insurance: Mathematics and Economics, Elsevier, vol. 45(3), pages 410-423, December.
    4. Georgios Gerasimou, 2013. "A Behavioural Model of Choice in the Presence of Decision Conflict," Discussion Paper Series, Department of Economics 201302, Department of Economics, University of St. Andrews.
    5. Huang, Huaxiong & Milevsky, Moshe A. & Salisbury, Thomas S., 2012. "Optimal retirement consumption with a stochastic force of mortality," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 282-291.
    6. Gerasimou, Georgios, 2012. "Asymmetric Dominance, Deferral and Status Quo Bias in a Theory of Choice with Incomplete Preferences," MPRA Paper 40097, University Library of Munich, Germany.
    7. Bandi, Federico M. & Russell, Jeffrey R. & Yang, Chen, 2008. "Realized volatility forecasting and option pricing," Journal of Econometrics, Elsevier, vol. 147(1), pages 34-46, November.
    8. Huaxiong Huang & Moshe A. Milevsky & Thomas S. Salisbury, 2012. "Optimal retirement consumption with a stochastic force of mortality," Papers 1205.2295, arXiv.org.
    9. Ivan Soraperra, 2009. "Revealed Preferences, Choices, and Psychological Indexes," Working Papers 643, Queen Mary, University of London, School of Economics and Finance.

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