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Modelling and management of mortality risk: a review

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  • Andrew Cairns
  • David Blake
  • Kevin Dowd

Abstract

In the first part of the paper, we consider the wide range of extrapolative stochastic mortality models that have been proposed over the last 15–20 years. A number of models that we consider are framed in discrete time and place emphasis on the statistical aspects of modelling and forecasting. We discuss how these models can be evaluated, compared and contrasted. We also discuss a discrete-time market model that facilitates valuation of mortality-linked contracts with embedded options. We then review several approaches to modelling mortality in continuous time. These models tend to be simpler in nature, but make it possible to examine the potential for dynamic hedging of mortality risk. Finally, we review a range of financial instruments (traded and over-the-counter) that could be used to hedge mortality risk. Some of these, such as mortality swaps, already exist, while others anticipate future developments in the market.

Suggested Citation

  • Andrew Cairns & David Blake & Kevin Dowd, 2008. "Modelling and management of mortality risk: a review," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2008(2-3), pages 79-113.
    • Handle: RePEc:taf:sactxx:v:2008:y:2008:i:2-3:p:79-113
    DOI: 10.1080/03461230802173608
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    Cited by:

    1. FLICI, Farid, 2016. "The future of longevity and life annuities pricing in Algeria: comparison of mortality models," SocArXiv 2tdgm, Center for Open Science.
    2. Basellini, Ugofilippo & Camarda, Carlo Giovanni & Booth, Heather, 2022. "Thirty years on: A review of the Lee-Carter method for forecasting mortality," SocArXiv 8u34d, Center for Open Science.
    3. Lei He & Tianquan Zhong & Zhenqi Wang, 2023. "Assessing Delayed Retirement Policies Linked to Dynamic Life Expectancy with Stochastic Dynamic Mortality," Mathematics, MDPI, vol. 11(24), pages 1-16, December.
    4. Basellini, Ugofilippo & Camarda, Carlo Giovanni & Booth, Heather, 2023. "Thirty years on: A review of the Lee–Carter method for forecasting mortality," International Journal of Forecasting, Elsevier, vol. 39(3), pages 1033-1049.

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