A Square-Root Factor-Based Multi-Population Extension of the Mortality Laws

In this paper, we present and calibrate a multi-population stochastic mortality model based on latent square-root affine factors of the Cox-Ingersoll and Ross type. The model considers a generalization of the traditional actuarial mortality laws to a stochastic, multi-population and time-varying setting. We calibrate the model to fit the mortality dynamics of UK males and females over the last 50 years. We estimate the optimal states and model parameters using quasi-maximum likelihood techniques.

Career breaks, broken pensions? Long-run effects of early and late-career unemployment spells on pension entitlements

Unemployment periods and other career breaks have long-term scarring effects on future labour market possibilities, permanently affecting workers' retirement income and standard of living as pensioners. Previous literature has focused on the impact of job loss on working careers with little attention to its impact on pension wealth, particularly the extent to which longevity heterogeneity amplifies unemployment scars. This paper investigates the effect of single and multiple unemployment spells on the lifetime pension entitlements of earnings-related contributory pension schemes, considering the timing and duration of breaks, alternative lifecycle labour earnings profiles, scarring and restoration effects on labour market re-entry, the existence of pension credits and pension accruals for periods spent outside the labour market, longevity heterogeneity, and the accumulation and decumulation redistributive features of the pension scheme. Pension entitlements are estimated using a backward-looking simulation approach based on the actual Portuguese public pension system rules and stylized labour market profiles identified in the SHARE Job Episodes Panel data using a sequence analysis. Longevity heterogeneity is modelled using a stochastic mortality model with a frailty model. Our results show that the timing and duration of unemployment periods is critical, that scarring effects amplify pension wealth losses, that minimum pension provisions, pension credits and pension scheme redistributive features can partially mitigate the impact of unemployment periods on future entitlements, and that the presence of positive correlation between lifetime income and longevity career breaks can amplify the asymmetry in the distribution of pension entitlements across income groups.

The New Fertility Policy and the Actuarial Balance of China Urban Employee Basic Endowment Insurance Fund Based on Stochastic Mortality Model

This study aims to investigate the impact of China’s new fertility policy on the actuarial balance of its Urban Employee Basic Endowment Insurance (UEBEI) fund, with stochastic mortality model included to address the longevity risk. Combined with the latest UEBEI policy, this paper constructs an actuarial balance model and introduces the growth rate of wage, the age of employment and the age of retirement, the rate of payment, the rate of replacement, the annual rate of pension adjustment, and the population in terms of age into the model, which arise from the rate of payment, average wage, and personal and social factors. This study uses the sixth population census data by age group and gender to employ empirical analysis. The sensitivity analysis of China’s basic pension insurance fund balance is made. It is concluded that the increase in the growth rate of wage caused by social factors, the increase of fund investment returns, the delay of retirement, and the increase in the fund collection rate are all conducive to the sustainability of the UEBEI fund.

A Quantitative Comparison of Multiple Population Mortality Model on Some East Asian Countries and Regions

This paper reviews the progress of the multiple population mortality model and the defects in parameter estimation and proposes an effective method to improve the performance of the mortality model. We set up a multiple population group, using the data of mainland China, Hong Kong (China), and Japan, to test fitting performance and forecasting performance. Using the TSWLS and TSSVD methods in a multiple population stochastic mortality model has advantages in fitting performance and robustness. In addition, the forecasting value of mortality ratio between any two populations can converge to a fixed constant in a certain time period which obeys the regular of human biological characteristics.

Managing Systematic Mortality Risk in Life Annuities: An Application of Longevity Derivatives

This paper assesses the hedge effectiveness of an index-based longevity swap and a longevity cap for a life annuity portfolio. Although longevity swaps are a natural instrument for hedging longevity risk, derivatives with non-linear pay-offs, such as longevity caps, provide more effective downside protection. A tractable stochastic mortality model with age dependent drift and volatility is developed and analytical formulae for prices of longevity derivatives are derived. The model is calibrated using Australian mortality data. The hedging of the life annuity portfolio is comprehensively assessed for a range of assumptions for the longevity risk premium, the term to maturity of the hedging instruments, as well as the size of the underlying annuity portfolio. The results compare the risk management benefits and costs of longevity derivatives with linear and nonlinear payoff structures.

Comparison of Stochastic Mortality Model for Wider Age Range

The incorporation of non-linear pattern of early ages has opened new research directions on improving the existing stochastic mortality model structure. Several authors have outlined the importance of encompassing the full age range in dealing with longevity risk exposure by not to ignore the dependence between young and old age. In this study, we consider the two extensions of Cairns, Blake and Dowd model that incorporate the irregularity profile seen at the mortality of lower ages which are Plat and O’Hare and Li. The models’ performances in terms of in-sample fitting and out-sample forecasts were examined and compared. The results indicated that O’Hare and Li model performs better as compared to Plat model