IDEAS home Printed from https://ideas.repec.org/a/pal/gpprii/v36y2011i4p675-696.html
   My bibliography  Save this article

A Quantitative Comparison of the Lee-Carter Model under Different Types of Non-Gaussian Innovations

Author

Listed:
  • Chou-Wen Wang

    (Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, Kaohsiung, Taiwan)

  • Hong-Chih Huang

    (Department of Risk Management and Insurance, Research Fellow of Risk and Insurance Research Center, National Chengchi University, Taipei, Taiwan)

  • I-Chien Liu

    (Department of Risk Management and Insurance, National Chengchi University, Taipei, Taiwan)

Abstract

In the classical Lee-Carter model, the mortality indices that are assumed to be a random walk model with drift are normally distributed. However, for the long-term mortality data, the error terms of the Lee-Carter model and the mortality indices have tails thicker than those of a normal distribution and appear to be skewed. This study therefore adopts five non-Gaussian distributions—Student’s t-distribution and its skew extension (i.e., generalised hyperbolic skew Student’s t-distribution), one finite-activity Lévy model (jump diffusion distribution), and two infinite-activity or pure jump models (variance gamma and normal inverse Gaussian)—to model the error terms of the Lee-Carter model. With mortality data from six countries over the period 1900–2007, both in-sample model selection criteria (e.g., Bayesian information criterion, Kolmogorov–Smirnov test, Anderson–Darling test, Cramér–von-Mises test) and out-of-sample projection errors indicate a preference for modelling the Lee-Carter model with non-Gaussian innovations.

Suggested Citation

  • Chou-Wen Wang & Hong-Chih Huang & I-Chien Liu, 2011. "A Quantitative Comparison of the Lee-Carter Model under Different Types of Non-Gaussian Innovations," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 36(4), pages 675-696, October.
    • Handle: RePEc:pal:gpprii:v:36:y:2011:i:4:p:675-696
    as

    Download full text from publisher

    File URL: http://www.palgrave-journals.com/gpp/journal/v36/n4/pdf/gpp201120a.pdf
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: http://www.palgrave-journals.com/gpp/journal/v36/n4/full/gpp201120a.html
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Chou-Wen & Yang, Sharon S. & Huang, Hong-Chih, 2015. "Modeling multi-country mortality dependence and its application in pricing survivor index swaps—A dynamic copula approach," Insurance: Mathematics and Economics, Elsevier, vol. 63(C), pages 30-39.
    2. Blake, David & Cairns, Andrew J.G., 2021. "Longevity risk and capital markets: The 2019-20 update," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 395-439.
    3. Blake, David & El Karoui, Nicole & Loisel, Stéphane & MacMinn, Richard, 2018. "Longevity risk and capital markets: The 2015–16 update," Insurance: Mathematics and Economics, Elsevier, vol. 78(C), pages 157-173.
    4. Mitchell, Daniel & Brockett, Patrick & Mendoza-Arriaga, Rafael & Muthuraman, Kumar, 2013. "Modeling and forecasting mortality rates," Insurance: Mathematics and Economics, Elsevier, vol. 52(2), pages 275-285.
    5. Hunt, Andrew & Blake, David, 2015. "Modelling longevity bonds: Analysing the Swiss Re Kortis bond," Insurance: Mathematics and Economics, Elsevier, vol. 63(C), pages 12-29.
    6. Ahmadi, Seyed Saeed & Gaillardetz, Patrice, 2015. "Modeling mortality and pricing life annuities with Lévy processes," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 337-350.
    7. Yang, Sharon S. & Wang, Chou-Wen, 2013. "Pricing and securitization of multi-country longevity risk with mortality dependence," Insurance: Mathematics and Economics, Elsevier, vol. 52(2), pages 157-169.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:gpprii:v:36:y:2011:i:4:p:675-696. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.