A General Semi-Markov Model for Coupled Lifetimes. Issue 1 (2nd January 2019)

• Record Type: Journal Article
• Authors: Ji, Min; Zhou, Rui
• Is Part Of: North American actuarial journal. Volume 23:Issue 1(2019)
• Page Start: 98
• Page End: 119
• Publication Date: 2019-01-02
• Subjects: Life insurance -- Research -- North America -- Periodicals; Actuarial science -- North America -- Periodicals; Web sites; Electronic journals; 368.010973
• DOI: 10.1080/10920277.2018.1513370
• Languages: English
• ISSNs: 2325-0453

Abstract

Abstract : Joint-life annuities with a high last survivor benefit play an important role in the optimal annuity portfolio for a retired couple. The dependence between coupled lifetimes is crucial for valuing joint-life annuities. Existing bivariate modeling of coupled lifetimes is based on outdated data with limited observation periods and does not take into account mortality improvement. In this article, we propose a transparent and dynamic framework for modeling coupled lifetime dependence caused by both marital status and common mortality improvement factors. Dependence due to marital status is captured by a semi-Markov joint life model. Dependence due to common mortality improvement, which represents the correlation between mortality improvement patterns of coupled lives, is incorporated by a two-population mortality improvement model. The proposed model is applied to pricing the longevity risk in last survivor annuities sold in the United States and the United Kingdom.