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Modelling Mortality Using Multiple Stochastic Latent Factors

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  • Jorge Bravo

    (University of Évora, Department of Economics and CEFAGEUE)

Abstract

In this paper we develop a new model for stochastic mortality that considers the possibility of both positive and negative catastrophic mortality shocks. Specifically, we assume that the mortality intensity can be described by an affine function of a finite number of latent factors whose dynamics is represented by affine-jump diffusion processes. The model is then embedded into an affine-jump framework, widely used in the term structure literature, in order to derive closed-form solutions for the survival probability. This framework and model application to the classical Gompertz-Makeham mortality law provides a theoretical foundation for the pricing and hedging of longevity-linked derivatives.

Suggested Citation

  • Jorge Bravo, 2011. "Modelling Mortality Using Multiple Stochastic Latent Factors," CEFAGE-UE Working Papers 2011_26, University of Evora, CEFAGE-UE (Portugal).
    • Handle: RePEc:cfe:wpcefa:2011_26
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    References listed on IDEAS

    as
    1. Carlos Wong-Fupuy & Steven Haberman, 2004. "Projecting Mortality Trends," North American Actuarial Journal, Taylor & Francis Journals, vol. 8(2), pages 56-83.
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    7. Shripad Tuljapurkar & Carl Boe, "undated". "Mortality Change and Forecasting: How Much and How Little Do We Know?," Pension Research Council Working Papers 98-2, Wharton School Pension Research Council, University of Pennsylvania.
    8. Shripad Tuljapurkar & Carl Boe, 1998. "Mortality Change and Forecasting," North American Actuarial Journal, Taylor & Francis Journals, vol. 2(4), pages 13-47.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stochastic mortality intensity; Longevity risk; Affine-jump models.;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    NEP fields

    This paper has been announced in the following NEP Reports:

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