Volterra mortality model: actuarial valuation and risk management with long-range dependence (Q2656983)

The authors propose a novel class of Volterra mortality models that incorporate long-range dependence (LRD) into the actuarial valuation, retain tractability, and are consistent with the existing continuous-time affine mortality models. To include the LRD, the authors suppose that the counting process \(N(t)\) of the number of deaths has an intensity \(\mu(t)=f(X(t))\) where \(X(t)\) follows a fractional Brownian motion which is equivalent to a Volterra process. The survival probability is derived in closed form by taking into account the historical health records. The models can be used for valuing mortality-related products such as death benefits, annuities, longevity bonds, as well as for offering optimal mean-variance mortality hedging rules. Numerical studies are conducted to examine the effect of incorporating LRD into mortality rates on various insurance products and hedging efficiency.