Modelling Mortality Using Multiple Stochastic Latent Factors
AbstractIn 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.
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Bibliographic InfoPaper provided by University of Evora, CEFAGE-UE (Portugal) in its series CEFAGE-UE Working Papers with number 2011_26.
Length: 16 pages
Date of creation: 2011
Date of revision:
Stochastic mortality intensity; Longevity risk; Affine-jump models.;
Find related papers by JEL classification:
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-02-20 (Economics of Ageing)
- NEP-ALL-2012-02-20 (All new papers)
- NEP-HEA-2012-02-20 (Health Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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