A Hidden Markov Approach to Disability Insurance

DOI10.1080/10920277.2017.1387570zbMATH Open1393.62044arXiv1412.7334OpenAlexW2216649368MaRDI QIDQ4567964FDOQ4567964

Authors: Boualem Djehiche, Björn Löfdahl 

Publication date: 20 June 2018

Published in: North American Actuarial Journal (Search for Journal in Brave)

Abstract: Point and interval estimation of future disability inception and recovery rates are predominantly carried out by combining generalized linear models (GLM) with time series forecasting techniques into a two-step method involving parameter estimation from historical data and subsequent calibration of a time series model. This approach may in fact lead to both conceptual and numerical problems since any time trend components of the model are incoherently treated as both model parameters and realizations of a stochastic process. We suggest that this general two-step approach can be improved in the following way: First, we assume a stochastic process form for the time trend component. The corresponding transition densities are then incorporated into the likelihood, and the model parameters are estimated using the Expectation-Maximization algorithm. We illustrate the modelling procedure by fitting the model to Swedish disability claims data.

Full work available at URL: https://arxiv.org/abs/1412.7334

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zbMATH Keywords

expectation-maximization algorithmdisability insurancehidden Markov approach

Mathematics Subject Classification ID

Markov processes: estimation; hidden Markov models (62M05) Applications of statistics to actuarial sciences and financial mathematics (62P05)

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Cited In (2)

• Exact long time behavior of some regime switching stochastic processes
• Stochastic modelling of disability insurance in a multi-period framework

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