The Future of Old-Age Longevity: Competitive Pricing of Mortality Contingent Claims

Posted: 15 Aug 1997  

Charles Mullin

Vanderbilt University - College of Arts and Science - Department of Economics

Tomas Philipson

University of Chicago; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: Undated

Abstract

The future course of old-age mortality is of great importance to public sector expenditures in countries where old-age programs, such as Social Security and Medicare in the US, account for large fractions of the public budget. This paper argues that the competitive market prices of mortality contingent claims, such as annuities and life-insurance, contain information which allow one to infer the opinion of the market regarding the pace of the continued increase in old-age longevity. The paper develops methods to identify and estimate the mortality implicit in the market prices of such claims by identifying survival functions from prices of contracts that differ in their duration. Utilizing these methods, we provide estimates using cohort-specific prices of US term life insurance contracts in 1990-96 for individuals aged 60 in each calendar year. Our main finding is that the mortality patterns inferred from these prices indicate a continued decline in cohort-specific mortality at rates equal to or greater than recent historical trends; about a 5 percent reduction in relative terms in the mortality hazards per successive cohort.

JEL Classification: G22, I12

Suggested Citation

Mullin, Charles and Philipson, Tomas, The Future of Old-Age Longevity: Competitive Pricing of Mortality Contingent Claims (Undated). Available at SSRN: https://ssrn.com/abstract=11002

Charles Mullin (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

Tomas J. Philipson

University of Chicago ( email )

Graduate School of Business
1101 East 58th Street
Chicago, 60637

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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