Coherent mortality forecasting with generalized linear models: A modified time-transformation approach

Ahmadi, Seyed Saeed; Li, Johnny Siu-Hang

doi:10.1016/j.insmatheco.2014.09.007

Cited by 17 publications

(13 citation statements)

References 46 publications

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“…For instance, Biatat and Currie (2010) extend to two populations the P-spline methodology (Currie et al, 2004) that has been successfully applied in the single population case, while Hatzopoulos and Haberman (2013) and Ahmadi and Li (2014) use the framework of generalised linear models (GLM) to obtain coherent morality forecasts for multiple populations.…”

Section: Wan and Bertschi (2015)mentioning

confidence: 99%

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A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

Villegas¹,

Haberman²,

Kaishev³

et al. 2017

ASTIN Bull.

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent repository link ABSTRACTLongevity swaps have been one of the major success stories of pension scheme derisking in recent years. However, with some few exceptions, all of the transactions to date have been bespoke longevity swaps based upon the mortality experience of a portfolio of named lives. In order for this market to start to meet its true potential, solutions will ultimately be needed that provide protection for all types of members, are cost effective for large and smaller schemes, are tradable, and enable access to the wider capital markets. Index-based solutions have the potential to meet this need; however concerns remain with these solutions. In particular, the basis risk emerging from the potential mismatch between the underlying forces of mortality for the index reference portfolio and the pension fund/annuity book being hedged is the principal issue that has, to date, prevented many schemes progressing their consideration of index-based solutions. Two-population stochastic mortality models offer an alternative to overcome this obstacle as they allow market participants to compare and project the mortality experience for the reference and target populations and thus assess the amount of demographic basis risk involved in an index-based longevity hedge. In this paper, we systematically assess the suitability of several multi-population stochastic mortality models for assessing basis risks and provide guidelines on how to use these models in practical situations paying particular attention to the data requirements for the appropriate calibration and forecasting of such models.

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Section: Wan and Bertschi (2015)mentioning

confidence: 99%

“…A distinguishing feature of the P-Spline model of Biatat and Currie (2010) and of the multipopulation GLM of Ahmadi and Li (2014) is that they assume that mortality follows a deterministic time trend, meaning that these models cannot generate sample paths. Hence, we do not consider these two models any further.…”

Section: Generation Of Sample Pathsmentioning

confidence: 99%

A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

Villegas¹,

Haberman²,

Kaishev³

et al. 2017

ASTIN Bull.

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“…In recent years, stochastic mortality models for modeling multiple populations have gained considerable attention among researchers and end-users (see, e.g., Li and Hardy, 2011;Ahmadi and Li, 2014;Kleinow, 2015). Multi-population mortality models can be used to ensure consistency of a national mortality projection with the mortality experiences observed in neighbouring countries that possess similar demographic characteristics (see Wan and Bertschi, 2015).…”

Section: Introductionmentioning

confidence: 99%

“…The optimized smoothing parameters are identified by using a leaveone-out cross-validation, which is more sophisticated than that entailed in the single-population setting due to the increased number of smoothing parameters. We acknowledge that smooth coherent multi-population mortality forecasts may also be generated by other methods, including the coherent generalized linear modeling approach (Ahmadi and Li, 2014) and parallel P-splines regressions (Currie et al, 2004, Section 4.2), but these methods are not able to provide sample paths (trajectories) of future mortality rates, which are useful in many actuarial applications including Value-at-Risk and hedge ratio calculations (see, e.g., Li and Hardy, 2011;Zhou and Li, 2017).…”

Section: Introductionmentioning

confidence: 99%

Mortality Forecasting for Multiple Populations: An Augmented Common Factor Model with a Penalized Log-Likelihood

Kang

Liu

et al. 2018

Communications in Statistics: Case Studies, Data Analysis and A

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Recently, the topic of multi-population mortality forecasting has gained considerable attention among researchers and end-users. One of the most popular multi-population mortality models is the augmented common factor (ACF) model. In spite of its popularity, the ACF model is subject to the limitation of producing mortality forecasts with a jagged pattern rather than a smooth relationship with age. In this paper, we attempt to mitigate this problem by generalizing the work of Delwarde et al. (2007) to a multi-population setting. The generalization involves (n p + 1) smoothing parameters, one for the common trend and one for each of the n p individual populations. The smoothing parameters are determined by using an extended leave-one-out cross-validation. We illustrate the proposed extension with real mortality data. It is found that compared to the original ACF model, the proposed extension produces mortality forecasts that are more reasonable, with less jagged patterns across ages.

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“…(), Zhou et al. , and Ahmadi and Li (). The majority of the recent developments in multipopulation mortality modeling have been built on an important concept called coherence, originally proposed by Li and Lee ().…”

Section: Introductionmentioning

confidence: 99%

Semicoherent Multipopulation Mortality Modeling: The Impact on Longevity Risk Securitization

Li¹,

Chan²,

Zhou³

2016

J of Risk & Insurance

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Multipopulation mortality models play an important role in longevity risk transfers involving more than one population. Most of the existing multipopulation mortality models are built on the hypothesis of coherence, which assumes that there always exists a force that brings the mortality differential between any two populations back to a constant long-term equilibrium level. This hypothesis prevents diverging long-term forecasts, which do not seem to be biologically reasonable. However, the coherence assumption may be perceived by market participants as too strong and is in fact not always supported by empirical observations. In this article, we introduce a new concept called "semicoherence," which is less stringent in the sense that it permits the mortality trajectories of two related populations to diverge, as long as the divergence does not exceed a specific tolerance corridor, beyond which mean reversion will come into effect. We further propose to produce semicoherent mortality forecasts by using a vector threshold autoregression. The proposed modeling approach is illustrated with mortality data from U.S. and English and Welsh male populations, and is applied to several pricing and hedging scenarios.

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Coherent mortality forecasting with generalized linear models: A modified time-transformation approach

Cited by 17 publications

References 46 publications

A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

A Comparative Study of Two-Population Models for the Assessment of Basis Risk in Longevity Hedges

Mortality Forecasting for Multiple Populations: An Augmented Common Factor Model with a Penalized Log-Likelihood

Semicoherent Multipopulation Mortality Modeling: The Impact on Longevity Risk Securitization

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