The Choice of Sample Size for Mortality Forecasting: A Bayesian Learning Approach

38 Pages Posted: 27 Feb 2015

See all articles by Hong Li

Hong Li

Warren Centre for Actuarial Studies and Research, University of Manitoba

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Bertrand Melenberg

Tilburg University - Center for Economic Research (CentER)

Date Written: November 27, 2014

Abstract

Forecasted mortality rates using mortality models proposed in the recent literature are sensitive to the sample size. In this paper we propose a method based on Bayesian learning to determine model-specific posterior distributions of the sample sizes. In particular, the sample size is included as an extra parameter in the parameter space of the mortality model, and its posterior distribution is obtained based on historical performance for different forecast horizons up to 20 years. Age- and gender-specific posterior distributions of sample sizes are computed. Our method is applicable to a large class of linear mortality models. As illustration, we focus on the first generation of the Lee-Carter model and the Cairns-Blake-Dowd model. Our method is applied to U.S. and Dutch data. For both countries we find highly concentrated posterior distributions of the sample size that are gender- and age-specific. In the out-of-sample forecast analysis, the Bayesian model outperforms the original mortality models with fixed sample sizes in the majority of cases.

Keywords: Lee-Carter model, Cairns-Blake-Dowd model, Gibbs sampling

Suggested Citation

Li, Hong and De Waegenaere, Anja M.B. and Melenberg, Bertrand, The Choice of Sample Size for Mortality Forecasting: A Bayesian Learning Approach (November 27, 2014). Netspar Discussion Paper No. 11/2014-072. Available at SSRN: https://ssrn.com/abstract=2569675 or http://dx.doi.org/10.2139/ssrn.2569675

Hong Li

Warren Centre for Actuarial Studies and Research, University of Manitoba ( email )

638 Drake Centre, 181 Freedman Crescent
Winnipeg, MB R3T 2N2
Canada

Anja M.B. De Waegenaere (Contact Author)

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Bertrand Melenberg

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2730 (Phone)

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