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Lee-Carter Model: XT X X T XT

The Lee-Carter model is used to forecast mortality rates by extracting a single time-varying factor, kt, from historical age-specific death rates using singular value decomposition. kt is projected into the future using ARIMA and then combined with the original age profiles, ax, and sensitivity profiles, bx, to forecast future mortality rates. However, the model assumes mortality trends are driven by a single factor, which factor analysis has shown to be an oversimplification, finding at least two factors are needed to explain trends over the 1900-2014 period. The document proposes conducting a factor analysis to determine the true number of underlying mortality change factors.

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50 views2 pages

Lee-Carter Model: XT X X T XT

The Lee-Carter model is used to forecast mortality rates by extracting a single time-varying factor, kt, from historical age-specific death rates using singular value decomposition. kt is projected into the future using ARIMA and then combined with the original age profiles, ax, and sensitivity profiles, bx, to forecast future mortality rates. However, the model assumes mortality trends are driven by a single factor, which factor analysis has shown to be an oversimplification, finding at least two factors are needed to explain trends over the 1900-2014 period. The document proposes conducting a factor analysis to determine the true number of underlying mortality change factors.

Uploaded by

Nazakat ali
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© © All Rights Reserved
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Lee-Carter Model

Lee-Carter Model used in mortality forecasting the contribution to the model age specific death
rates output forecasted matrix of mortality rates. Model use singular value decomposition (SVD)
to find univariate time series vector “kt” t refer to time. To forecast mortality kt projected into
future using ARIMA (Autoregressive Integrated Moving Average) kt linearity use generally
modeled use random walk trend. Confidence Interval for the forecasts are generated by multiple
mortality forecast using montekarlo method.
Some outline and matlabs style pseudocode.

1. Create ax by taking numerical algorithm of the mortality rates and centering the results
with the average log mortality at a given age.
2. Derive kt, a scaling eigenvalue, and bx from U (:1), S (1,1), V (1, :), where [U S V] =
svd(mort).
3. Forecast kt with standard univariate ARIMA methods.
4. Use the forecast kt with the original bx and ax to calculate logged mortality rates for each
forecast year.
5. Recover regular mortality rates by calculating the exponential of the forecasted log
mortality rates.

SVD has become widely used a method disparate field. Lee-Carter model uses linear
extrapolation of the logarithms of age-specific death rate to forecast mortality using principal
component techniques. A matrix of age-specific mortality rates. Forecast mortality based on a
simple formula for the force of mortality u x ,t at age x in year t.

LC Model:

ln(u x ,t )   x   x  t   xt
 x = Average shape age profile

 x = Rate mortality improvement at age x.

 t = General level mortality at time t.

 xt = Error term age specific.

x
x 1 , k
x
x 0

Original LC model estimated by minimizing residual sum of squares.

 (ln(u )  x  xt )
2

x ,t
x ,t
The first constraint implies that the parameter a(x) is an empirical average of the logarithm of
mortality at age x over time. In the first stage of the Lee-Carter method, coefficients a(x)
and b(x) are estimated. In the second stage, the empirical values of k(t) coefficients are estimated
using the following formula (Lee 2000):
Dt = ∑ exp(ax + bxkt)Nx,t
where Dt is total number of deaths in year t, and Nxt is the population aged x in year t.
The empirical time series of k coefficients can be extrapolated from the base period to the future,
which is essentially a linear extrapolation.
Note that the Lee-Carter method is modeling logarithms rather than absolute values of mortality
and hence is based on a multiplicative model of mortality change over time (rather than an
additive one, as in the case of the Gompertz-Makeham model). However, the Lee-Carter model
is not based on any particular parametric formula and allows researchers to make a compact
description of a large set of mortality data without excessive loss of information. In contrast to
aggregated indicators such as life expectancy, the knowledge of the Lee-Carter model parameters
allows researchers to reconstruct values of age-specific mortality rates and their temporal
evolution with reasonable accuracy.
One limitation of this method is related to the assumption that historical evolution of mortality at
all age groups is driven by one factor only—parameter b (Lee 2000). However, a factor analysis
of mortality evolution (see the appendix for details) found that this approach turns out to be
overly simplistic (Gavrilov and Gavrilova 1991; Gavrilov and Nosov 1985). For example, factor
analysis of mortality dynamics over the period of 1900–2014 in developed countries found that
at least two time-dependent factors are responsible for the observed decline of mortality
(younger age groups have a different factor of mortality decline compared with older groups). A
one-factor model could be applicable to earlier historical periods (before the 1950s), when a
decline in mortality rates was driven mainly by a decrease in the background mortality, that is,
the Makeham parameter of the Gompertz-Makeham law (Gavrilov and Gavrilova 1991; Gavrilov
et al. 1983). It is obvious that the Lee-Carter model is not well applicable to mortality modeling
during the period 1900–1950 because of the additive rather than multiplicative model of
mortality decline during this time.
To overcome this limitation of the one-factor model of mortality and to determine the true
number of factors underlying mortality changes over time, we conducted a factor analysis of
mortality over the period 1900–2014 (see the appendix for more detail). We used the so-called P-
technique of factor analysis when the analysis occurs across different time points or observations
(values of hazard rates at different years) for ages 25 through 85 (Uberla 1977). We applied a
factor analysis procedure with the promax rotation method using the Stata statistical package,
release 13. Data on men and women were analyzed separately. The analyses were conducted for
12 industrialized countries with sufficiently long time series of mortality data.

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