The Future of Old-Age Longevity: Competitive Pricing of Morality Contingent Claims
AbstractThe future course of old-age mortality is of great importance to public sector expenditures in countries where old-age programs account for large fractions of the public budget. This paper argues that the competitive market prices of mortality contingent claims, such as annuities and life insurance, contain information which allow one to infer the opinion of the market regarding the pace of the continued increase in old-age longevity. The paper develops methods to identify and estimate the mortality implicit in the market prices of such claims by identifying survival functions from prices of contracts that differ in their duration. Utilizing these methods, we provide estimates using cohort-specific prices of US term life insurance contracts in 1990-96" for individuals aged 60 in each calendar year. Our main finding is that the mortality patterns inferred from these prices indicate a continued decline in cohort-specific mortality at rates equal to or greater than recent historical trends; about a 5 percent reduction in relative terms in the mortality hazards per successive cohort.
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Bibliographic InfoPaper provided by Chicago - Center for Study of Economy and State in its series University of Chicago - George G. Stigler Center for Study of Economy and State with number 134.
Date of creation: 1997
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Other versions of this item:
- Charles Mullin & Tomas Philipson, 1997. "The Future of Old-Age Longevity: Competitive Pricing of Mortality Contingent Claims," NBER Working Papers 6042, National Bureau of Economic Research, Inc.
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"An Empirical Examination of Information Barriers to Trade inInsurance,"
University of Chicago - George G. Stigler Center for Study of Economy and State
132, Chicago - Center for Study of Economy and State.
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