Multi-Population Mortality Models: A Factor Copula ApproachExport this event to calendar

Tuesday, January 28, 2014 — 4:00 PM to 5:00 PM EST
WATRISQ presents a guest seminar featuring Hua Chen, Assistant Professor of Risk, Insurance and Healthcare Management, Temple University Philadelphia, Pennsylvania, USA entitled, "Multi-Population Mortality Models: A Factor Copula Approach."
Abstract:
 
Modeling mortality co-movements for multiple populations have significant implications for mortality/longevity risk management. A few two-population mortality models have been proposed to date. They are typically based on the assumption that the forecasted mortality experiences of two or more related populations converge in the long run. This assumption might be justified by the long-term mortality co-integration and thus be applicable to longevity risk modeling. However, it seems too strong to model the short-term mortality dependence. In this paper, we propose a two-stage procedure based on the time
series analysis and a factor copula approach to model mortality dependence for multiple populations. In the first stage, we filter the mortality dynamics of each population using an ARMA-GARCH process with heavy-tailed innovations, removing abnormalities, such as autocorrelation and volatility clustering, from the mortality data. In the second stage, we model the residual risk using a one-factor copula model, which is widely applicable to high dimension data and very flexible in terms of model specification. We then illustrate how to use our mortality model and the maximum entropy approach for mortality risk pricing and hedging. Our model generates par spreads that are close to the actual spreads of the Vita III mortality bond. We also price a bond with a structure similar to the Kortis longevity bond and demonstrate how to use the bond to hedge residual longevity risk of an
insurer with both pension and life books of business. (Co-Authored with Richard MacMinn and Tao Sun).
 
Biography: 

Dr. Hua Chen has been appointed as an Assistant Professor of Risk, Insurance, and Healthcare Management. He received his Ph.D. degree in risk management and insurance at Georgia State University in 2008. His research interests include corporate risk management, risk modeling and securitization, and actuarial mathematics. Dr. Chen has publications in top tier journals in insurance and actuarial science, including Journal of Risk and Insurance, Insurance: Mathematics and Economics, and North American Actuarial Journal. Dr. Chen coordinates the Robert A. Hedges Research Seminar Series in the Department of Risk, Insurance and Healthcare Management, and is the director of the M.S. Program in Actuarial Science at Temple University.
 
Faculty Host: Professor Johnny Li, Statistics and Actuarial Science, University of Waterloo
 
To find out more, contact the Waterloo Research Institute in Insurance,
Securities and Quantitative Finance by visiting M3 4108 or contacting (519) 888-4567 ext. 31043
 
 
Location 
DC - William G. Davis Computer Research Centre
Room 1304
200 University Avenue West

Waterloo, ON N2L 3G1
Canada

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