Parametric mortality indexes: From index construction to hedging strategies

Abstract

In this paper, we investigate the construction of mortality indexes using the time-varying parameters in common stochastic mortality models. We first study how existing models can be adapted to satisfy the new-data-invariant property, a property that is required to ensure the resulting mortality indexes are tractable by market participants. Among the collection of adapted models, we find that the adapted Model M7 (the Cairns-Blake-Dowd model with cohort and quadratic age effects) is the most suitable model for constructing mortality indexes. One basis of this conclusion is that the adapted model M7 gives the best fitting and forecasting performance when applied to data over the age range of ..