Constructing dynamic life tables with a single factor model

Abstract

The paper deals with the mortality risk evolution and presents a one factor model explaining the dynamics of all of the mortality rates. The selected factor will be the mortality rate at the key age, and an empirical study involving males and females in France and Spain will reveal that the present approach is not outperformed by more complex factor models. The key age seems to reflect several advantages with respect to other factors available in the literature. Actually, it is totally observable, and the methodology may be easily extended so as to incorporate more factors (more key ages), a cohort effect, specific mortality causes or specific ages. Furthermore, the choice of a key age as an explanatory factor is inspired by former studies about the interest rates dynamics, which allows us to draw on the model in order to address some longevity risk linked problems. Indeed, one only has to slightly modify some interest rate linked methodologies.