An augmented variable Dirichlet process mixture model for the analysis of dependent lifetimes (Q7021790)

The pricing of insurance and annuity products issued on multiple lives, such as couple members, requires the use of statistical models which can predict their future lifetimes. The assumption of independent lifetimes can sensibly reduce the model complexity and ease the implementation of computational routines for pricing. However, this assumption is not tenable in practice.\N\NThe authors present augmented variable Dirichlet process mixture (AVDPM) model for the analysis of nonexchangeable joint dependent lifetimes within a group, where individual as well as group specific covariates are available. The model is analyzed in Bayesian setting and illustrated to jointly model the lifetime of male-female couples in a portfolio of joint and last survivor annuities of a Canadian life insurer. An improved in-sample and out-of-sample performance is shown compared to traditional approaches assuming independent lifetimes.