A unified approach to mortality modelling using state-space framework

characterisation, identification, estimation and forecasting

Man Chung Fung, Gareth W. Peters, Pavel V. Shevchenko

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Abstract

This paper explores and develops alternative statistical representations and estimation approaches for dynamic mortality models. The framework we adopt is to reinterpret popular mortality models such as the Lee–Carter class of models in a general state-space modelling methodology, which allows modelling, estimation and forecasting of mortality under a unified framework. We propose alternative model identification constraints which are more suited to statistical inference in filtering and parameter estimation. We then develop a class of Bayesian state-space models which incorporate a priori beliefs about the mortality model characteristics as well as for more flexible and appropriate assumptions relating to heteroscedasticity that present in observed mortality data. To study long-term mortality dynamics, we introduce stochastic volatility to the period effect. The estimation of the resulting stochastic volatility model of mortality is performed using a recent class of Monte Carlo procedure known as the class of particle Markov chain Monte Carlo methods. We illustrate the framework using Danish male mortality data, and show that incorporating heteroscedasticity and stochastic volatility markedly improves model fit despite an increase of model complexity. Forecasting properties of the enhanced models are examined with long-term and short-term calibration periods on the reconstruction of life tables.
Original languageEnglish
Pages (from-to)343-389
Number of pages47
JournalAnnals of Actuarial Science
Volume11
Issue number2
Early online date2017
DOIs
Publication statusPublished - Sep 2017

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Bibliographical note

Copyright Institute and Faculty of Actuaries 2017. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

  • mortality modelling
  • state-space model
  • stochastic volatility
  • bayesian inference
  • particle Markov chain Monte Carlo

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