Modelling Mortality Dependence: An Application of Dynamic Vine Copula
AuthorZhou, R; Ji, M
Source TitleInsurance: Mathematics and Economics
University of Melbourne Author/sZhou, Rui
Document TypeJournal Article
CitationsZhou, R. & Ji, M. (2021). Modelling Mortality Dependence: An Application of Dynamic Vine Copula. Insurance: Mathematics and Economics, Forthcoming
Access StatusThis item is embargoed and will be available on 2022-09-30
Vine copula, constructed from bivariate copulas, provides great exibility in modelling complex high-dimensional dependence. When applied to multi- population mortality modelling, vine copula yields signi_cant improvement over traditional multivariate copulas. In this paper, we propose to capture time- varying features in mortality dependence with dynamic regular vine (R-vine) copula which is built from bivariate copulas with time-varying dependence pa- rameters. We develop two dependence dynamics for R-vine copulas and illustrate the selection and estimation of dynamic R-vine copulas using mortality data from eight populations. The estimated R-vine copulas using the proposed dependence dynamics are shown to yield better goodness of _t than both static and regime- switching vine copulas. We further demonstrate the simulation of mortality paths using dynamic R-vine copulas and examine the impact of vine copula choice on the assessed e_ectiveness of longevity hedge.
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