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

39 Pages Posted: 21 Jun 2000 Last revised: 5 Oct 2010

See all articles by Charles Mullin

Charles Mullin

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

Tomas Philipson

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

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Date Written: May 1997

Abstract

The future course of old-age mortality is of great importance to public sector expenditures in countries where old-age programs 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.

Suggested Citation

Mullin, Charles and Philipson, Tomas J., The Future of Old-Age Longevity: Competitive Pricing of Mortality Contingent Claims (May 1997). NBER Working Paper No. w6042. Available at SSRN: https://ssrn.com/abstract=226452

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
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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