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A Deep Learning integrated mortality model for Longevity Swap pricing
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Autores
Orientador(es)
Resumo(s)
This research empirically investigates the usage of Recurrent Neural
Networks (RNN) to improve the accuracy of mortality rates forecasting
within the context of Longevity linked securities pricing. The benchmark
model in the mortality field is the classical Lee-Carter; the forecasting
procedure of these model is often conducted with ARIMA models. I consider
a fixed forecasting time horizon in order to compare the performance
of Long Short-Term Memory (LSTM) and Gated Recurrent Unit (GRU)
with different hyperparameter and data input choices against that produced
by the best fitted ARIMA models. The results are then applied
to Longevity Swap pricing in order to better estimates the premium of
the derivatives contracts. The investigation is conducted for six countries,
using mortality data from 1950 onwards, differentiating by gender. The
research shows how RNN outperform the classical ARIMA models in the
forecasting procedure. Although the advantages of RNN’s techniques are
strictly bounded to the set of hyperparameter used for the comparison;
the outcomes of such approaches can vary greatly using different input
choices. In the end the results shows that an RNN approach can bring
significant changes to the price of Longevity Linked securities. The research
is in the first place one of the few to test the forecasting accuracy of
Deep Learning methods accounting for alternative methodological, hyperparameter
and data input choices. Afterwards the investigation demonstrate
the necessity of revisit the classical mortality models in order to
better estimates prices of derivatives contracts that are very useful in the
context of Longevity risk.
Descrição
Dissertation presented as the partial requirement for obtaining a Master's degree in Statistics and Information Management, specialization in Risk Analysis and Management
Palavras-chave
Mortality Deep Learning Long short-term memory Gated Recurrent Unit Lee-Carter model Longevity risk Longevity swap Longevity swap pricing