A step-by-step guide to building two-population stochastic mortality models

Li, Johnny Siu-Hang; Zhou, Rui; Hardy, Mary R.

doi:10.1016/j.insmatheco.2015.03.021

Cited by 47 publications

(44 citation statements)

References 23 publications

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“…Another alternative for modelling multi-population mortality is to extend the widely used single-population Cairns-Blake-Dowd (CBD) model of mortality (Cairns et al, 2006). This approach has recently been considered by Li et al (2015) who introduce two-population versions of the CBD model and its variants. For instance, in a full twopopulation version of the M7 model (the CBD model with cohort and quadratic effects proposed in Cairns et al (2009)), the one-year death rate for a person aged x at time t in population i, q i xt , is given by:…”

Section: Wan and Bertschi (2015)mentioning

confidence: 99%

“…Li et al (2015) also set out a systematic top-down procedure to evaluate if some of the stochastic factors in the two-population model can be shared by the two populations (e.g. by assuming in (4) that κ…”

Section: Wan and Bertschi (2015)mentioning

confidence: 99%

“…Li and Hardy (2011) investigate the use of a number of multipopulation extensions of the Lee-Carter model (Lee and Carter, 1992) for the assessment of basis risk and use the Augmented Common Factor model of Li and Lee (2005) to quantify the hedge effectiveness of an index-based q-forward longevity hedge. Li et al (2015) propose a systematic approach for the construction of two-population mortality models that can be used for the quantification of the population basis risk in a standardised longevity hedge. In addition, recent years have seen a boom in the actuarial and demographic literature looking at the modelling of mortality in two (or more) related populations (e.g.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

Villegas¹,

Haberman²,

Kaishev³

et al. 2017

ASTIN Bull.

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link ABSTRACTLongevity swaps have been one of the major success stories of pension scheme derisking in recent years. However, with some few exceptions, all of the transactions to date have been bespoke longevity swaps based upon the mortality experience of a portfolio of named lives. In order for this market to start to meet its true potential, solutions will ultimately be needed that provide protection for all types of members, are cost effective for large and smaller schemes, are tradable, and enable access to the wider capital markets. Index-based solutions have the potential to meet this need; however concerns remain with these solutions. In particular, the basis risk emerging from the potential mismatch between the underlying forces of mortality for the index reference portfolio and the pension fund/annuity book being hedged is the principal issue that has, to date, prevented many schemes progressing their consideration of index-based solutions. Two-population stochastic mortality models offer an alternative to overcome this obstacle as they allow market participants to compare and project the mortality experience for the reference and target populations and thus assess the amount of demographic basis risk involved in an index-based longevity hedge. In this paper, we systematically assess the suitability of several multi-population stochastic mortality models for assessing basis risks and provide guidelines on how to use these models in practical situations paying particular attention to the data requirements for the appropriate calibration and forecasting of such models.

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Section: Wan and Bertschi (2015)mentioning

confidence: 99%

Section: Wan and Bertschi (2015)mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

Villegas¹,

Haberman²,

Kaishev³

et al. 2017

ASTIN Bull.

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show abstract

“…Li and Lee propose an additional common factor between the multiple populations, and is one of the models considered here.Other authors have also carried out further work on the Li and Lee model, a notable example being Li (2013), who reviews a variation on the original model. Recent work that considers different models from those in this paper include the extensive analyses of Haberman et al (2014), Li et al (2015) and Danesi et al (2015). Haberman et al (2014) consider a range of two-population mortality models and assess these against a variety of criteria including the coherence of forecasts.…”

Section: Introductionmentioning

confidence: 99%

“…1 Li et al (2015) consider two-population variants of seven of the models first considered by Cairns et al (2009). Their analysis aims for balance between historical quality of fit, qualitative model selection criteria and coherence of forecasts.…”

Section: Introductionmentioning

confidence: 99%

Multi-population mortality models: fitting, forecasting and comparisons

Enchev

Kleinow

Cairns

2016

Scandinavian Actuarial Journal

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We review a number of multi-population mortality models: variations of the Li and Lee (2005) model, and the common-age-effect (CAE) model of Kleinow (2014). Model parameters are estimated using maximum likelihood. Although this introduces some challenging identifiability problems and complicates the estimation process it allows a fair comparison of the different models. We propose to solve these identifiability problems by applying two dimensional constraints over the parameters. Using data from six countries, we compare and rank, both visually and numerically, the models' fitting qualities and develop forecasting models that produce nondiverging, joint mortality rate scenarios.It is found that the CAE model fits best. But we also find that the Li and Lee model potentially suffers from robustness problems when calibrated using maximum likelihood.

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Multi-population mortality modelling and forecasting: a hierarchical credibility regression approach

Bozikas

Pitselis

2020

Eur. Actuar. J.

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A step-by-step guide to building two-population stochastic mortality models

Cited by 47 publications

References 23 publications

A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

Multi-population mortality models: fitting, forecasting and comparisons

Multi-population mortality modelling and forecasting: a hierarchical credibility regression approach

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