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The Lee-Carter Model for Forecasting Mortality, Revisited

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  • Siu-Hang Li
  • Wai-Sum Chan

Abstract

Interrupting phenomena are commonly encountered in time-series data analysis with the study of mortality trends being no exception. Nevertheless, previous demographic forecasts have paid little attention to the existence of such phenomena. In this study we use mortality data from Canada and the United States to perform time-series outlier analysis on the key component of the Lee-Carter model: the mortality index. We begin by employing a systematic outlier detection process to ascertain the timing, magnitude, and persistence of any outliers present in historical trends of the mortality index. We then try to match the identified outliers with important events that could possibly justify the vacillations in human mortality levels. At the same time, we adjust the effect of the outliers for model reestimation. The empirical results indicate that the outlieradjusted model could achieve better fits and more efficient forecasts of variables such as the central rates of death and the life expectancies at birth. Finally, we conclude our study with possible extensions on the valuations of life annuities and the probabilistic distribution of the highest attained age, incorporating the effect of mortality improvement portrayed by the revised model.

Suggested Citation

  • Siu-Hang Li & Wai-Sum Chan, 2007. "The Lee-Carter Model for Forecasting Mortality, Revisited," North American Actuarial Journal, Taylor & Francis Journals, vol. 11(1), pages 68-89.
  • Handle: RePEc:taf:uaajxx:v:11:y:2007:i:1:p:68-89
    DOI: 10.1080/10920277.2007.10597438
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    1. repec:hum:wpaper:sfb649dp2009-008 is not listed on IDEAS
    2. Wang, Zihe & Li, Johnny Siu-Hang, 2016. "A DCC-GARCH multi-population mortality model and its applications to pricing catastrophic mortality bonds," Finance Research Letters, Elsevier, vol. 16(C), pages 103-111.
    3. Boyer, M. Martin & Stentoft, Lars, 2013. "If we can simulate it, we can insure it: An application to longevity risk management," Insurance: Mathematics and Economics, Elsevier, vol. 52(1), pages 35-45.
    4. Jackie Li & Jia Liu, 2020. "A modified extreme value perspective on best-performance life expectancy," Journal of Population Research, Springer, vol. 37(4), pages 345-375, December.
    5. Hanewald, Katja, 2009. "Lee-Carter and the macroeconomy," SFB 649 Discussion Papers 2009-008, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.

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