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A DOUBLE COMMON FACTOR MODEL FOR MORTALITY PROJECTION USING BEST-PERFORMANCE MORTALITY RATES AS REFERENCE

Published online by Cambridge University Press:  01 February 2021

Jackie Li ,
Maggie Lee  and
Simon Guthrie
Jackie Li*
Affiliation:
Department of Actuarial Studies and Business Analytics Macquarie University, Sydney, New South Wales 2109, Australia E-Mail: [email protected]
Maggie Lee
Affiliation:
Department of Actuarial Studies and Business Analytics Macquarie University, Sydney, New South Wales 2109, Australia E-Mail: [email protected]
Simon Guthrie
Affiliation:
Department of Actuarial Studies and Business Analytics Macquarie University, Sydney, New South Wales 2109, Australia E-Mail: [email protected]
*
E-Mail: [email protected]
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Abstract

We construct a double common factor model for projecting the mortality of a population using as a reference the minimum death rate at each age among a large number of countries. In particular, the female and male minimum death rates, described as best-performance or best-practice rates, are first modelled by a common factor model structure with both common and sex-specific parameters. The differences between the death rates of the population under study and the best-performance rates are then modelled by another common factor model structure. An important result of using our proposed model is that the projected death rates of the population being considered are coherent with the projected best-performance rates in the long term, the latter of which serves as a very useful reference for the projection based on the collective experience of multiple countries. Our out-of-sample analysis shows that the new model has potential to outperform some conventional approaches in mortality projection.

Keywords

Common factor modelbest-performance/best-practice life expectancygeneralised extreme value distribution for minimacoherent mortality projectionG22J11C38
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 51 , Issue 2 , May 2021 , pp. 349 - 374
Copyright
© 2021 by Astin Bulletin. All rights reserved

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