O'Hare, Colin and Li, Youwei (2014): Identifying structural breaks in stochastic mortality models. Forthcoming in: ASCEASME Journal of Risk and Uncertainty in Engineering Systems, Part B. Mechanical Engineering

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Abstract
In recent years the issue of life expectancy has become of upmost importance to pension providers, insurance companies and the government bodies in the developed world. Significant and consistent improvements in mortality rates and hence life expectancy have led to unprecedented increases in the cost of providing for older ages. This has resulted in an explosion of stochastic mortality models forecasting trends in mortality data in order to anticipate future life expectancy and hence quantify the costs of providing for future ageing populations. Many stochastic models of mortality rates identify linear trends in mortality rates by time, age and cohort and forecast these trends into the future using standard statistical methods. These approaches rely on the assumption that structural breaks in the trend do not exist or do not have a significant impact on the mortality forecasts. Recent literature has started to question this assumption. In this paper we carry out a comprehensive investigation of the presence or otherwise of structural breaks in a selection of leading mortality models. We find that structural breaks are present in the majority of cases. In particular, where there is a structural break present we find that allowing for that improves the forecast result significantly.
Item Type:  MPRA Paper 

Original Title:  Identifying structural breaks in stochastic mortality models 
Language:  English 
Keywords:  Mortality; stochastic models; forecasting; structural breaks 
Subjects:  C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C51  Model Construction and Estimation C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C52  Model Evaluation, Validation, and Selection C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C53  Forecasting and Prediction Methods ; Simulation Methods G  Financial Economics > G2  Financial Institutions and Services > G22  Insurance ; Insurance Companies ; Actuarial Studies G  Financial Economics > G2  Financial Institutions and Services > G23  Nonbank Financial Institutions ; Financial Instruments ; Institutional Investors J  Labor and Demographic Economics > J1  Demographic Economics > J11  Demographic Trends, Macroeconomic Effects, and Forecasts 
Item ID:  62994 
Depositing User:  Dr Youwei Li 
Date Deposited:  20. Mar 2015 13:56 
Last Modified:  20. Mar 2015 13:56 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/62994 