Mortality: a statistical approach to detect model misspecification

Abstract : The Solvency 2 advent and the best-estimate methodology in future cash-flows valuation lead insurers to focus particularly on their assumptions. In mortality, hypothesis are critical as insurers use best-estimate laws instead of standard mortality tables. Backtesting methods, i.e. ex-post modelling validation processes , are encouraged by regulators and rise an increasing interest among practitioners and academics. In this paper, we propose a statistical approach (both parametric and non-parametric models compliant) for mortality laws backtesting under model risk. Afterwards, a specification risk is introduced assuming that the mortality law is subject to random variations. Finally, the suitability of the proposed method will be assessed within this framework.
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Submitted on : Thursday, May 7, 2015 - 4:37:39 PM
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Jean-Charles Croix, Frédéric Planchet, Pierre-Emmanuel Thérond. Mortality: a statistical approach to detect model misspecification. Bulletin Français d'Actuariat, Institut des Actuaires, 2015, 15 (29), pp.13. ⟨hal-01149396⟩

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