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

Which is a recognised limitation of the basic Lee-Carter model?

A key limitation is that a single period index with fixed age loadings forces the relative pattern of improvement across ages to stay constant over time, and the basic model has no cohort effect. It does allow improvement to differ by age through b(x).

  1. AIt cannot produce a mortality improvement rate that varies by age
  2. BIt assumes the rate of improvement at each age is constant over time because the age and time effects are multiplicative with a single time indexCorrect
  3. CIt requires a separate time index for each age
  4. DIt cannot be used to produce confidence intervals under any assumption
  5. It models only deaths and not exposure

Explanation

With one k(t) and a fixed b(x), the improvement rate at age x is proportional to b(x) times the change in k, so the age pattern of improvement is fixed. Improvement varies by age through b(x), so the first option is wrong. The model also ignores cohort effects in its basic form.

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