Pensions Institute Discussion Paper No. PI-0801
70 Pages Posted: 10 Feb 2009 Last revised: 10 Jul 2009
Date Written: April 1, 2008
We investigate the uncertainty of forecasts of future mortality generated by a number of previously proposed stochastic mortality models. We specify fully the stochastic structure of the models to enable them to generate forecasts. Mortality fan charts are then used to compare and contrast the models, with the conclusion that model risk can be significant.
The models are also assessed individually with reference to three criteria that focus on the plausibility of their forecasts: biological reasonableness of forecast mortality term structures; biological reasonableness of individual stochastic components of the forecasting model (for example, the cohort erect); and reasonableness of forecast levels of uncertainty relative to historical levels of uncertainty. In addition, we consider a fourth assessment criterion dealing with the robustness of forecasts relative to the sample period used to fit the model.
To illustrate the assessment methodology, we analyse a data set consisting of national population data for England & Wales, for Males aged between 60 and 90 years old. We note that this particular data set may favour those models designed for application to older ages, such as variants of Cairns-Blake-Dowd, and emphasise that a similar analysis should be conducted for the specific data set of interest to the reader. We draw some conclusions based on the analysis and compare to the application of the models for the same age group and gender for the United States population. Finally, we note the broader application of the approach to model selection for alternate data sets and populations
Keywords: Stochastic mortality model, cohort erect, fan charts, model risk, fore-casting, model selection criteria
Suggested Citation: Suggested Citation
Cairns, Andrew J. G. and Blake, David P. and Dowd, Kevin and Coughlan, Guy and Epstein, David and Khalaf-Allah, Marwa, Mortality Density Forecasts: An Analysis of Six Stochastic Mortality Models (April 1, 2008). Pensions Institute Discussion Paper No. PI-0801. Available at SSRN: https://ssrn.com/abstract=1340353 or http://dx.doi.org/10.2139/ssrn.1340353