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Coherent forecasting of mortality rates: a sparse vector-autoregression approach. (English) Zbl 1390.62215

Summary: This paper proposes a spatial-temporal autoregressive model for the mortality surface, where mortality rates of each age depend on the historical values of itself (temporality) and the neighbouring ages (spatiality). The mortality dynamics is formulated as a large, first order vector autoregressive model which encompasses standard factor models such as the Lee and Carter model [R. D. Lee and L. R. Carter, J. Am. Stat. Assoc. 87, No. 419, 659–675 (1992; Zbl 1351.62186)]. Sparsity and smoothness constraints are then introduced, based on the idea that the nearer the two ages, the more important the dependence between mortalities at these ages. Our model has several novelties. First, it ensures that in the long-run, mortality rates at different ages do not diverge. Second, it provides a natural explanation of the so-called cohort effect without identifiability difficulties. Third, the model is easily extended to the multiple-population case in a coherent way. Finally, the model is associated with a closed form, non-parametric estimation method: the penalized least square, which ensures spatial smoothness of the age-dependent parameters. Using US and UK mortality data, we find that our model produces reasonable projected mortality profile in the long-run, as well as satisfying short-run out-of-sample forecast performance.

MSC:

62P05 Applications of statistics to actuarial sciences and financial mathematics
62M30 Inference from spatial processes
62M10 Time series, auto-correlation, regression, etc. in statistics (GARCH)
91B30 Risk theory, insurance (MSC2010)
91D20 Mathematical geography and demography

Citations:

Zbl 1351.62186
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References:

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