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Modelling mortality dependence: An application of dynamic vine copula

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  • Zhou, Rui
  • Ji, Min

Abstract

Vine copula, constructed from bivariate copulas, provides great flexibility in modelling complex high-dimensional dependence. When applied to multi-population mortality modelling, vine copula yields significant improvement over traditional multivariate copulas. In this paper, we propose to capture time-varying features in mortality dependence with dynamic regular vine (R-vine) copula which is built from bivariate copulas with time-varying dependence parameters. We develop two dependence dynamics for R-vine copulas and illustrate the selection and estimation of dynamic R-vine copulas using mortality data from eight populations. The estimated R-vine copulas using the proposed dependence dynamics are shown to yield better goodness of fit than both static and regime-switching vine copulas. We further demonstrate the simulation of mortality paths using dynamic R-vine copulas and examine the impact of vine copula choice on the assessed effectiveness of longevity hedge.

Suggested Citation

  • Zhou, Rui & Ji, Min, 2021. "Modelling mortality dependence: An application of dynamic vine copula," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 241-255.
    • Handle: RePEc:eee:insuma:v:99:y:2021:i:c:p:241-255
    DOI: 10.1016/j.insmatheco.2021.03.022
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    References listed on IDEAS

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