Modelling lifetime dependence for older ages using a multivariate Pareto distribution

Daniel H. Alai, Zinoviy Landsman, Michael Sherris

Research output: Contribution to journalArticlepeer-review

Abstract

The main driver of longevity risk is uncertainty in old-age mortality, especially surrounding potential dependence structures. We investigate a multivariate Pareto distribution that allows for the exploration of a variety of applications, from portfolios of standard annuities to joint-life annuity products for couples. Given the anticipated continued increase of supercentenarians, the heavy-tailed nature of the Pareto distribution is appropriate for this application. In past work, it has been shown that even a little dependence between lives can lead to much higher uncertainty. Therefore, the ability to assess and incorporate the appropriate dependence structure, whilst allowing for extreme observations, significantly improves the pricing and risk management of life-benefit products.

Original languageEnglish
Pages (from-to)272-285
Number of pages14
JournalInsurance: Mathematics and Economics
Volume70
DOIs
StatePublished - 1 Sep 2016

Bibliographical note

Publisher Copyright:
© 2016 Elsevier B.V.

Keywords

  • Bulk annuity pricing
  • Fisher information
  • Lifetime dependence
  • Longevity risk
  • Multivariate Pareto distribution
  • Quantiles
  • Truncation

ASJC Scopus subject areas

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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