Estimation and pricing with the Cairns-Blake-Dowd model of mortality
Parametric forecasts of future mortality improvements can be based on models with a small number of factors which summarise both the improvement in mortality and changes in the relationship between mortality and age. I extend the analysis of the two‐factor model of Cairns, Blake and Dowd (2006) to a more general dynamic process for the factors and also consider the problems arising from modelling estimated rather than observed factors. The methods are applied to mortality data for sixteen countries and are used to estimate the value of an annuity and measures of risk. The consequences for the money's worth of an annuity and reserving are also considered.
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