Backtesting Stochastic Mortality Models: An Ex-Post Evaluation of Multi-Period Ahead-Density Forecasts

43 Pages Posted: 29 Apr 2009 Last revised: 10 Jul 2009

See all articles by Kevin Dowd

Kevin Dowd

Nottingham University Business School (NUBS)

Andrew J. G. Cairns

Heriot-Watt University - Department of Actuarial Science & Statistics

David P. Blake

City University London - Cass Business School

Guy Coughlan

Pacific Global Advisors

David Epstein

J.P. Morgan Chase & Co.

Marwa Khalaf-Allah

J.P. Morgan

Date Written: September 1, 2008

Abstract

This study sets out a backtesting framework applicable to the multi-period-ahead forecasts from stochastic mortality models and uses it to evaluate the forecasting performance of six different stochastic mortality models applied to English & Welsh male mortality data. The models considered are: Lee-Carter’s 1992 one-factor model; a version of Renshaw-Haberman’s 2006 extension of the Lee-Carter model to allow for a cohort effect; the age-period-cohort model of Currie (2006), which is a simplified version of Renshaw-Haberman; Cairns, Blake and Dowd’s 2006 two-factor model; and two generalised versions of the latter with an added cohort effect. For the data set used herein the results from applying this methodology suggest that the models perform adequately by most backtests, and that there is little difference between the performances of five of the models. The remaining model, however, shows forecast instability. The study also finds that density forecasts that allow for uncertainty in the parameters of the mortality model are more plausible than forecasts that do not allow for such uncertainty.

Keywords: backtesting, forecasting performance, mortality models

Suggested Citation

Dowd, Kevin and Cairns, Andrew J. G. and Blake, David P. and Coughlan, Guy and Epstein, David and Khalaf-Allah, Marwa, Backtesting Stochastic Mortality Models: An Ex-Post Evaluation of Multi-Period Ahead-Density Forecasts (September 1, 2008). Available at SSRN: https://ssrn.com/abstract=1396201 or http://dx.doi.org/10.2139/ssrn.1396201

Kevin Dowd

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Andrew J. G. Cairns

Heriot-Watt University - Department of Actuarial Science & Statistics ( email )

Edinburgh, Scotland EH14 4AS
United Kingdom

David P. Blake (Contact Author)

City University London - Cass Business School ( email )

London, EC2Y 8HB
Great Britain
+44 (0) 20-7040-5143 (Phone)
+44 (0) 20-7040-8881 (Fax)

Guy Coughlan

Pacific Global Advisors ( email )

535 Madison Avenue
Floor 14
New York, NY 10022
United States
+1-212-405-6340 (Phone)

HOME PAGE: http://www.PacificGlobalAdvisors.com

David Epstein

J.P. Morgan Chase & Co. ( email )

60 Wall St.
New York, NY 10260
United States

Marwa Khalaf-Allah

J.P. Morgan ( email )

25 Bank Street
London, E14 5JP
United Kingdom

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