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IAI Actuarial Core Principles · Risk Modelling and Survival Analysis · Mortality projection

In the Lee-Carter model ln m(x,t) = a(x) + b(x)k(t), the period index k(t) is typically projected forward using which approach?

In Lee-Carter, the period index k(t) is projected with a time series model, usually a random walk with drift fitted to the estimated past values. Simulating this model produces stochastic mortality paths and prediction intervals for future rates.

  1. AA time series model such as a random walk with drift, fitted to the estimated k(t) valuesCorrect
  2. BA deterministic reduction factor applied to a(x) only
  3. CA Poisson regression on b(x) for each future year
  4. DA logistic curve for each age with a fixed asymptote
  5. Repeating the last observed value of k(t) for all future years

Explanation

Lee-Carter fits k(t) for the past years, then models it as a time series, commonly a random walk with drift. Simulating this gives stochastic projections of mortality. The other options do not describe the standard method; holding k(t) constant would imply no future improvement.

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