A flexible functional form approach to mortality modeling

do we need additional cohort dummies?

Han Li, Colin O'Hare, Farshid Vahid

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

The increasing amount of attention paid to longevity risk and funding for old age has created the need for precise mortality models and accurate future mortality forecasts. Orthogonal polynomials have been widely used in technical fields and there have also been applications in mortality modeling. In this paper we adopt a flexible functional form approach using two-dimensional Legendre orthogonal polynomials to fit and forecast mortality rates. Unlike some of the existing mortality models in the literature, the model we propose does not impose any restrictions on the age, time or cohort structure of the data and thus allows for different model designs for different countries’ mortality experience.We conduct an empirical study using male mortality data from a range of developed countries and explore the possibility of using age–time effects to capture cohort effects in the underlying mortality data. It is found that, for some countries, cohort dummies still need to be incorporated into the model. Moreover, when comparing the proposed model with well-known mortality models in the literature, we find that our model provides comparable fitting but with a much smaller number of parameters. Based on 5-year-ahead mortality forecasts, it can be concluded that the proposed model improves the overall accuracy of the future mortality projection.
Original languageEnglish
Pages (from-to)357-367
Number of pages11
JournalJournal of Forecasting
Volume36
Issue number4
DOIs
Publication statusPublished - Jul 2017
Externally publishedYes

Keywords

  • mortality
  • orthogonal polynomials
  • cohort effects
  • forecasting

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