Malaysian Journal of Mathematical Sciences, May 2019, Vol. 13, No. 2
Stochastic Mortality Model in a State-Space Framework
Mohd Nor, S. R., Yusof, F. and Bahar, A.
Corresponding Email: fadhilahy@utm.my
Received date: 10 November 2018
Accepted date: 27 April 2019
Abstract:
The incorporation of the time-varying parameter in the mortality model has become one the main contributions in the actuarial field since it allows for the stochastic nature of the mortality rates. However, it has also become a growing concern among the researchers since the residuals of the proposed model are evaluated independently. In this study, we extended the existing leading independent stochastic mortality model which is the O0Hare mortality model into the state-space representation of the O0Hare mortality model. The parameters of the extended model are estimated using the Expectation-Maximization algorithm of the maximum likelihood estimation method. Using the Malaysian mortality data, we have found that our proposed model significantly improves the accuracy of the in-sample fitting and the seven-year out-sample forecast as compared to the existing model considered.
Keywords: State-Space, Stochastic mortality model, O0Hare model and Forecast
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