**DISCUSSION PAPER PI-1003**

Estimation and Pricing with the Cairns-Blake-Dowd Model of Mortality

Edmund Cannon

Parametric forecasts of future mortality improvements can be based on models

with a small number of factors which summarise both the improvement in

mortality and changes in the relationship between mortality and age. I extend
the

analysis of the two-factor model of Cairns, Blake and Dowd (2006) to a more

general dynamic process for the factors and also consider the problems arising

from modelling estimated rather than observed factors. The methods are applied

to mortality data for sixteen countries and are used to estimate the value
of an

annuity and measures of risk. The consequences for the money’s worth
of an

annuity and reserving are also considered.

Keywords: stochastic mortality, mortality projections, annuity, money’s
worth