Longevity modelling must evolve
Current approaches to modelling longevity are undervaluing pension liabilities. Stochastic models should be used if the risk is to be properly accounted for and managed, argue Chris Madsen and Martijn Tans
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For at least the past century-and-a-half, life expectancy has been rising consistently. However, it is only recently that its measurement and modelling has gained significant attention. This is primarily the result of the profound impact on pension and social security systems of three elements: increasing longevity; volatile and poorly performing financial markets; and decreasing fertility rates.
The continuous increase in available computing
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