Lee-Carter goes risk-neutral: an application to the Italian annuity market

Biffis, E. & Denuit, M. (2005). Lee-Carter goes risk-neutral: an application to the Italian annuity market (Report No. Actuarial Research Paper No. 166). London, UK: Faculty of Actuarial Science & Insurance, City University London.

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Abstract

We consider a class of stochastic intensities of mortality that generalizes the model proposed by Lee and Carter (1992), allowing general diffusions to drive the mortality time-trend. We analyze the stability of such class of intensities under measure changes and show how a risk-neutral version of the generalized Lee-Carter model can be employed for fair valuation purposes. We provide an example of model calibration based on the Italian annuity market.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: stochastic mortality, Lee-Carter model, mortality projections, fair valuation, longevity risk
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Actuarial Science & Insurance > Faculty of Actuarial Science & Insurance Actuarial Research Reports
URI: http://openaccess.city.ac.uk/id/eprint/2298

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