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Forward mortality and other vital rates -- Are they the way forward?

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  • Norberg, Ragnar

Abstract

This paper presents a comparative study of stochastic interest and stochastic mortality showing that, despite a virtual similarity, the two concepts are fundamentally different. The notion of forward mortality rate, fetched from finance and now the latest thing in actuarial science, is predicted to soon go out of fashion. Trying it on, it does not fill the measurements of a well-made theoretical concept: there is an element of arbitrariness in its very definition, it disobeys certain self-evident parity requirements, and it fails to generalize to more complex models. It is concluded that forward rate modeling, while passable in the context of interest, is not the way forward in the context of mortality and more general life history analysis.

Suggested Citation

  • Norberg, Ragnar, 2010. "Forward mortality and other vital rates -- Are they the way forward?," Insurance: Mathematics and Economics, Elsevier, vol. 47(2), pages 105-112, October.
  • Handle: RePEc:eee:insuma:v:47:y:2010:i:2:p:105-112
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    References listed on IDEAS

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    1. Dahl, Mikkel, 2004. "Stochastic mortality in life insurance: market reserves and mortality-linked insurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 35(1), pages 113-136, August.
    2. Cairns, Andrew J.G. & Blake, David & Dowd, Kevin, 2006. "Pricing Death: Frameworks for the Valuation and Securitization of Mortality Risk," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 36(01), pages 79-120, May.
    3. Dahl, Mikkel & Moller, Thomas, 2006. "Valuation and hedging of life insurance liabilities with systematic mortality risk," Insurance: Mathematics and Economics, Elsevier, vol. 39(2), pages 193-217, October.
    4. Milevsky, Moshe A. & David Promislow, S., 2001. "Mortality derivatives and the option to annuitise," Insurance: Mathematics and Economics, Elsevier, vol. 29(3), pages 299-318, December.
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    Cited by:

    1. Marcus Christiansen & Andreas Niemeyer, 2015. "On the forward rate concept in multi-state life insurance," Finance and Stochastics, Springer, vol. 19(2), pages 295-327, April.
    2. Buchardt, Kristian, 2014. "Dependent interest and transition rates in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 167-179.
    3. Djehiche, Boualem & Löfdahl, Björn, 2014. "Risk aggregation and stochastic claims reserving in disability insurance," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 100-108.
    4. Stefan Tappe & Stefan Weber, 2014. "Stochastic mortality models: an infinite-dimensional approach," Finance and Stochastics, Springer, vol. 18(1), pages 209-248, January.
    5. Delong, Łukasz & Chen, An, 2016. "Asset allocation, sustainable withdrawal, longevity risk and non-exponential discounting," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 342-352.

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