Mortality forecasting with an age-coherent sparse VAR model

Hong Li, Yanlin Shi*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This paper proposes an age-coherent sparse Vector Autoregression mortality model, which combines the appealing features of existing VAR-based mortality models, to forecast future mortality rates. In particular, the proposed model utilizes a data-driven method to determine the autoregressive coefficient matrix, and then employs a rotation algorithm in the projection phase to generate agecoherent mortality forecasts. In the estimation phase, the age-specific mortality improvement rates are fitted to a VAR model with dimension reduction algorithms such as the elastic net. In the projection phase, the projected mortality improvement rates are assumed to follow a short-term fluctuation component and a long-term force of decay, and will eventually converge to an age-invariant mean in expectation. The age-invariance of the long-term mean guarantees age-coherent mortality projections. The proposed model is generalized to multi-population context in a computationally efficient manner. Using single-age, uni-sex mortality data of the UK and France, we show that the proposed model is able to generate more reasonable long-term projections, as well as more accurate short-term outof-sample forecasts than popular existing mortality models under various settings. Therefore, the proposed model is expected to be an appealing alternative to existing mortality models in insurance and demographic analyses.

Original languageEnglish
Article number35
Pages (from-to)1-19
Number of pages19
JournalRisks
Volume9
Issue number2
DOIs
Publication statusPublished - 5 Feb 2021

Bibliographical note

Copyright © 2021 by the authors. Licensee MDPI, Basel, Switzerland. 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

  • Age coherent
  • Elastic net regularization
  • Mortality forecasting
  • Vector autoregressive

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