Lee-Carter goes risk-neutral: an application to the Italian annuity market

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Biffis, E. ; Denuit, M. (2005)
  • Publisher: Faculty of Actuarial Science & Insurance, City University London
  • Subject: HG

We consider a class of stochastic intensities of mortality that generalizes the model proposed by Lee and Carter (1992), allowing general diffusions to drive the mortality time-trend. We analyze the stability of such class of intensities under measure changes and show how a risk-neutral version of the generalized Lee-Carter model can be employed for fair valuation purposes. We provide an example of model calibration based on the Italian annuity market.
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