Sieve bootstrapping in the Lee-Carter model
This paper studies an alternative approach to construct confidence intervals for parameter estimates of the Lee-Carter model. First, the procedure of obtaining confidence intervals using regular nonparametric i.i.d. bootstrap is specified. Empirical evidence seems to invalidate this approach as it indicates strong autocorrelation and cross correlation in the residuals. A more general approach is introduced, relying on the Sieve bootstrap method, that includes the nonparametric i.i.d. method as a special case. Secondly, this paper examines the performance of the nonparametric i.i.d. and the Sieve bootstrap approach. In an application to a Dutch data set, the Sieve bootstrap method returns much wider confidence intervals compared to the nonparametric i.i.d. approach. Neglecting the residuals dependency structure, the nonparametric i.i.d. bootstrap method seems to construct confidence intervals that are too narrow. Third, the paper discusses an intuitive explanation for the source of autocorrelation and cross correlation within stochastic mortality models.
|Date of creation:||2013|
|Date of revision:|
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