A Dynamic Factor Approach to Mortality Modelling

Declan French, Colin O'Hare

Research output: Contribution to journalArticle

12 Citations (Scopus)

Abstract

Longevity risk has become one of the major risks facing the insurance and pensions markets globally. The trade in longevity risk is underpinned by accurate forecasting of mortality rates. Using techniques from macroeconomic forecasting, we propose a dynamic factor model of mortality that fits and forecasts mortality rates parsimoniously.We compare the forecasting quality of this model and of existing models and find that the dynamic factor model generally provides superior forecasts when applied to international mortality data. We also show that existing multifactorial models have superior fit but their forecasting performance worsens as more factors are added. The dynamic factor approach used here can potentially be further improved upon by applying an appropriate stopping rule for the number of static and dynamic factors. 
Original languageEnglish
Pages (from-to)587-599
Number of pages13
JournalJournal of Forecasting
Volume32
Issue number7
Early online date05 Apr 2013
DOIs
Publication statusPublished - Nov 2013

Keywords

  • mortality
  • dynamic factor models
  • forecasting

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