The perils of parameter interpretation

(Dec 8, 2013)

With some notable exceptions, such as the Kaplan-Meier estimator, most mortality models contain parameters.  In a statistical model these parameters need to be estimated, and it is a natural thing for people to want to place interpretations on those parameter estimates.  However, this can be tricky, as parameters in a multi-parameter model are dependent on each other.

We will illustrate this with the Lee-Carter model, which is perhaps the most durable stochastic projection model in use today.  It is structured as follows:

log μx,y = αx + βxκy      (1)

where μx,y is the force of mortality at age x in year y, and αx, βx and κy are parameters to be estimated.  The Lee-Carter…

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Tags: Lee-Carter, parameterisation

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