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