A Trend-Change Extension of the Cairns-Blake-Dowd Model

E-ISSN： 1748-5002|5|2|143-162

ISSN： 1748-4995

Source： Annals of Actuarial Science, Vol.5, Iss.2, 2011-02, pp. : 143-162

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Abstract

This paper builds on the two-factor mortality model known as the Cairns-Blake-Dowd (CBD) model, which is used to project future mortality. It is shown that these two factors do not follow a random walk, as proposed in the original model, but that each should instead be modelled as a random fluctuation around a trend, the trend changing periodically. The paper uses statistical techniques to determine the points at which there are statistically significant changes in each trend. The frequency of change in each trend is then used to project the frequency of future changes, and the sizes of historical changes are used to project the sizes of future changes. The results are then presented as fan charts, and used to estimate the range of possible future outcomes for period life expectancies. These projections show that modelling mortality rates in this way leaves much greater uncertainty over future life expectancy in the long term.