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Accounting for COVID-19-type shocks in mortality modeling: a comparative study

Author

Listed:
  • Simon SCHNÜRCH

    (Department of Financial Mathematics, Fraunhofer Institute for Industrial Mathematics ITWM and Department of Mathematics, University of Kaiserslautern)

  • Torsten KLEINOW

    (Department of Actuarial Mathematics and Statistics and the Maxwell Institute for Mathematical Sciences, School of Mathematical and Computer Sciences, Heriot-Watt University)

  • Andreas WAGNER

    (Department of Financial Mathematics, Fraunhofer Institute for Industrial Mathematics ITWM)

Abstract

Mortality shocks such as the one induced by the COVID-19 pandemic have substantial impact on mortality models. We describe how to deal with them in the period effect of the Lee–Carter model. The main idea is to not rely on the usual normal distribution assumption as it is not always justified. We consider a mixture distribution model based on the peaks-over-threshold method, a jump model, and a regime switching model and introduce a modified calibration procedure to account for the fact that varying amounts of data are necessary for calibrating different parts of these models. We perform an extensive empirical study for nine European countries, comparing the models with respect to their parameters, quality of fit, and forecasting performance. Moreover, we define five exemplary scenarios regarding the future development of pandemic-related mortality. As a result of our evaluations, we recommend the peaks-over-threshold approach for applications with a possibility of extreme mortality events.

Suggested Citation

  • Simon SCHNÜRCH & Torsten KLEINOW & Andreas WAGNER, 2023. "Accounting for COVID-19-type shocks in mortality modeling: a comparative study," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 89(3), pages 483-512, September.
    • Handle: RePEc:ctl:louvde:v:89:y:2023:i:3:p:483-512
    DOI: 10.1017/dem.2023.9
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    Citations

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    Cited by:

    1. Şule Şahin & Selin Özen, 2024. "A Quantitative Comparison of Mortality Models with Jumps: Pre- and Post-COVID Insights on Insurance Pricing," Risks, MDPI, vol. 12(3), pages 1-24, March.

    More about this item

    Keywords

    COVID-19; Lee-Carter model; Mortality forecasting; Mortality Modelling; Mortality shocks;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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