Statistical Inference for Lee-Carter Mortality Model and Corresponding Forecasts. Issue 3 (3rd July 2019)

• Record Type: Journal Article
• Authors: Liu, Qing; Ling, Chen; Peng, Liang
• Is Part Of: North American actuarial journal. Volume 23:Issue 3(2019)
• Page Start: 335
• Page End: 363
• Publication Date: 2019-07-03
• Subjects: Life insurance -- Research -- North America -- Periodicals; Actuarial science -- North America -- Periodicals; Web sites; Electronic journals; 368.010973
• DOI: 10.1080/10920277.2018.1556702
• Languages: English
• ISSNs: 2325-0453

Abstract

Abstract : Although the Lee-Carter model has become a benchmark in modeling mortality rates, forecasting mortality risk, and hedging longevity risk, some serious issues exist on its inference and interpretation in the actuarial science literature. After pointing out these pitfalls, this article proposes a modified Lee-Carter model, provides a rigorous statistical inference, and derives the asymptotic distributions of the proposed estimators and unit root test when the mortality index is nearly integrated and errors in the model satisfy some mixing conditions. After a unit root hypothesis is not rejected, future mortality forecasts can be obtained via the proposed inference. An application of the proposed unit root test to U.S. mortality rates rejects the unit root hypothesis for the female and combined mortality rates but does not reject the unit root hypothesis for the male mortality rates.