A Simple Approach to Project Extreme Old Age Mortality Rates and Value Mortality-Related Financial Instruments
Pensions Institute Discussion Paper, PI-1907, December 2019
7 Pages Posted: 16 Mar 2020
Date Written: December 1, 2019
This article shows how mortality models that involve age effects can be fitted to ages beyond the sample range using projections of age effects as replacements for age effects that might not be in the sample. This ‘projected age effect’ approach allows insurers to use age-effect mortality models to obtain valuations of financial instruments such as annuities that depend on projections of extreme old age 𝑞 rates. Illustrative results suggest that the proposed approach provides a good approximation to both 𝑞 rates and term annuity prices. The practical import of this approach is to allow insurers to apply a much wider range of mortality models to such problems than would otherwise be possible.
Keywords: Age-Period-Cohort mortality model, age effect, projection, extreme old age, term annuity
JEL Classification: G220, G230, J110
Suggested Citation: Suggested Citation