Continuous improvement

(Oct 12, 2020)

In a previous blog I demonstrated that there was a statistically significant relationship between pension size and mortality.  In a subsequent blog I looked at the improvements in model fit from treating pension size as a factor, but concluded that this was only a partial solution.  In practice actuaries would prefer to avoid the discretisation error that comes with treating a real-valued variate as a discrete factor.  Furthermore, it would be useful for pricing bases if a pension-size mortality effect could be extrapolated to values beyond those in the calibrating data set.

The first hurdle in modelling mortality continuously by pension size is the presence of extreme values in actuarial data sets. This…

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Tags: discretisation error, transform function, response function

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