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Open AccessArticle

Estimation of Uncertainty in Mortality Projections Using State-Space Lee-Carter Model

by Rokas Gylys and Jonas Šiaulys *,†
Institute of Mathematics, Vilnius University, Naugarduko 24, Vilnius LT-03225, Lithuania
*
Author to whom correspondence should be addressed.
Both authors contributed equally to this work.
Mathematics 2020, 8(7), 1053; https://doi.org/10.3390/math8071053
Received: 7 May 2020 / Revised: 26 June 2020 / Accepted: 29 June 2020 / Published: 30 June 2020
(This article belongs to the Special Issue Probability, Statistics and Their Applications)
The study develops alternatives of the classical Lee-Carter stochastic mortality model in assessment of uncertainty of mortality rates forecasts. We use the Lee-Carter model expressed as linear Gaussian state-space model or state-space model with Markovian regime-switching to derive coherent estimates of parameters and to introduce additional flexibility required to capture change in trend and non-Gaussian volatility of mortality improvements. For model-fitting, we use a Bayesian Gibbs sampler. We illustrate the application of the models by deriving the confidence intervals of mortality projections using Lithuanian and Swedish data. The results show that state-space model with Markovian regime-switching adequately captures the effect of pandemic, which is present in the Swedish data. However, it is less suitable to model less sharp but more prolonged fluctuations of mortality trends in Lithuania.
Keywords: Lee-Carter model; state-space models; Markov switching model; mortality risk; economic capital Lee-Carter model; state-space models; Markov switching model; mortality risk; economic capital
MDPI and ACS Style

Gylys, R.; Šiaulys, J. Estimation of Uncertainty in Mortality Projections Using State-Space Lee-Carter Model. Mathematics 2020, 8, 1053.

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