On Stochastic Mortality Modeling

Richard Plat

IThe last decennium a vast literature on stochastic mortality models
has been developed. All well known models have nice features but
also disadvantages. In this paper a stochastic mortality model is
proposed that aims at combining the nice features from existing models,
while eliminating the disadvantages. More specifically, the model fits
historical data very well, is applicable to a full age range, captures
the cohort effect, has a non-trivial (but not too complex) correlation
structure and has no robustness problems, while the structure of the
model remains relatively simple. Also, the paper describes how to
incorporate parameter uncertainty in the model. Furthermore, a risk
neutral version of the model is given, that can be used for pricing.

Keywords: stochastic mortality models, longevity risk, pricing,
Solvency 2, Monte Carlo simulation

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