Volterra mortality model: actuarial valuation and risk management with long-range dependence
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Publication:2656983
DOI10.1016/J.INSMATHECO.2020.10.002zbMATH Open1460.91240arXiv2009.09572OpenAlexW3093857344MaRDI QIDQ2656983FDOQ2656983
Authors: Ling Wang, Mei Choi Chiu, Hoi Ying Wong 
Publication date: 17 March 2021
Published in: Insurance Mathematics \& Economics (Search for Journal in Brave)
Abstract: While abundant empirical studies support the long-range dependence (LRD) of mortality rates, the corresponding impact on mortality securities are largely unknown due to the lack of appropriate tractable models for valuation and risk management purposes. We propose a novel class of Volterra mortality models that incorporate LRD into the actuarial valuation, retain tractability, and are consistent with the existing continuous-time affine mortality models. We derive the survival probability in closed-form solution by taking into account of the historical health records. The flexibility and tractability of the models make them useful in valuing mortality-related products such as death benefits, annuities, longevity bonds, and many others, as well as 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.
Full work available at URL: https://arxiv.org/abs/2009.09572
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Cited In (9)
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- COVID-19 and credit risk: a long memory perspective
- Bond portfolio optimization with long-range dependent credits
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- Stochastic mortality dynamics driven by mixed fractional Brownian motion
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