Life Tables in Actuarial Models: From the Deterministic Setting to a Bayesian Approach

22 Pages Posted: 8 May 2011 Last revised: 20 May 2011

See all articles by Annamaria Olivieri

Annamaria Olivieri

University of Parma - Dipartimento di Scienze Economiche e Aziendali

Ermanno Pitacco

MIB Trieste School of Management

Date Written: November 24, 2010

Abstract

The mortality dynamics experienced in the latest decades, especially at adult and old ages, has motivated the introduction of major innovations in the modeling of mortality for actuarial applications; such innovations concern, in particular, the representation of the uncertainty relating to aggregate mortality.

In this paper, we first provide a description of the traditional mortality model, which is deterministic, but also allows quite easily for a representation of the uncertainty relating to individual mortality. Then, we discuss a stochastic approach to the modeling of the uncertainty relating to aggregate mortality. Due to the importance of mortality evolution in respect of post-retirement liabilities, we refer to a portfolio of immediate life annuities (or pension annuities). We assume that a (projected) life table which provides a best-estimate assessment of annuitants' future mortality is available. We show that the life table, from which a deterministic description of future mortality can be obtained, can be used as the basic input of appropriate stochastic models. In particular, we consider a Bayesian-inferential setting for updating the parameters of the stochastic model according to the experienced mortality.

Keywords: Deterministic mortality, Stochastic mortality, Life annuities, Random fluctuations, Systematic deviations, Process risk, Uncertainty risk, Longevity risk, Bayesian inference

JEL Classification: C00, G22

Suggested Citation

Olivieri, Annamaria and Pitacco, Ermanno, Life Tables in Actuarial Models: From the Deterministic Setting to a Bayesian Approach (November 24, 2010). Available at SSRN: https://ssrn.com/abstract=1834182 or http://dx.doi.org/10.2139/ssrn.1834182

Annamaria Olivieri (Contact Author)

University of Parma - Dipartimento di Scienze Economiche e Aziendali ( email )

via Kennedy 6
Parma, 43125
Italy

Ermanno Pitacco

MIB Trieste School of Management

Trieste, Trieste 34100
Italy

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