Modelling Stochastic Bivariate Mortality

ICER Working Paper No. 5/2006

Cass Business School Research Paper

34 Pages Posted: 22 Sep 2006

See all articles by Elisa Luciano

Elisa Luciano

Collegio Carlo Alberto; University of Turin - Department of Statistics and Applied Mathematics

Elena Vigna

University of Turin - Faculty of Economics; Collegio Carlo Alberto; CeRP

Jaap Spreeuw

City University London - Sir John Cass Business School

Date Written: April 2006

Abstract

In this note we use doubly stochastic processes (or Cox processes) in order to model the evolution of the stochastic force of mortality of an individual aged x. These processes have been widely used in the credit risk literature in modelling the default arrival, and in this context have proved to be quite flexible and useful. We investigate the applicability of these processes in describing the individual's mortality, and provide a calibration to the Italian case. Results from the calibration are twofold. Firstly, the stochastic intensities seem to better capture the development of medicine and long term care which is under our daily observation. Secondly, when pricing insurance products such as life annuities, we observe a remarkable premium increase, although the expected residual lifetime is essentially unchanged.

Suggested Citation

Luciano, Elisa and Vigna, Elena and Spreeuw, Jaap, Modelling Stochastic Bivariate Mortality (April 2006). ICER Working Paper No. 5/2006, Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=932045 or http://dx.doi.org/10.2139/ssrn.932045

Elisa Luciano (Contact Author)

Collegio Carlo Alberto ( email )

via Real Collegio 30
Moncalieri, Torino 10024
Italy

HOME PAGE: http://www.carloalberto.org/people/faculty/fellows/luciano/

University of Turin - Department of Statistics and Applied Mathematics ( email )

Corso Unione Sovietica 218 bis
Turin, I-10122
Italy
+ 39 011 6705230 (Phone)

Elena Vigna

University of Turin - Faculty of Economics ( email )

Dipartimento di Statistica e Matematica Applicata
Corso Unione Sovietica 218 bis
Torino, 10134
Italy

Collegio Carlo Alberto ( email )

via Real Collegio 30
Moncalieri, Torino 10024
Italy

CeRP ( email )

Via Real Collegio, 30
Moncalieri, Turin 10024
Italy

Jaap Spreeuw

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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