Stochastic Mortality Under Measure Changes

42 Pages Posted: 22 Jun 2009 Last revised: 26 Oct 2009

See all articles by Enrico Biffis

Enrico Biffis

Imperial College Business School

Michel Denuit

Catholic University of Louvain

Pierre Devolder

Catholic University of Louvain

Date Written: October 11, 2009

Abstract

We provide a self-contained analysis of a class of continuous-time stochastic mortality models that have gained popularity in the last few years. We describe some of their advantages and limitations, examining whether their features survive equivalent changes of measures. This is important when using the same model for both market-consistent valuation and risk management of life insurance liabilities. We provide a numerical example based on the calibration to the French annuity market of a risk-neutral version of the model proposed by Lee and Carter (1992).

Keywords: Stochastic mortality, Lee-Carter model, mortality risk premium, fair valuation, mortality-linked securities

Suggested Citation

Biffis, Enrico and Denuit, Michel and Devolder, Pierre, Stochastic Mortality Under Measure Changes (October 11, 2009). Available at SSRN: https://ssrn.com/abstract=848267 or http://dx.doi.org/10.2139/ssrn.848267

Enrico Biffis (Contact Author)

Imperial College Business School ( email )

Imperial College London
South Kensington campus
London, SW7 2AZ
United Kingdom

Michel Denuit

Catholic University of Louvain ( email )

Place Montesquieu, 3
B-1348 Louvain-la-Neuve, 1348
Belgium

Pierre Devolder

Catholic University of Louvain ( email )

Place Montesquieu, 3
B-1348 Louvain-la-Neuve, 1348
Belgium