Selecting stochastic mortality models for the Italian population

The future revision of capital requirements and a market-consistent valuation of non-hedgeable liabilities lead to an increasing attention on fore- casting longevity trends. In this field, many methodologies focus on either modelling mortality or pricing mortality-linked securities (as longevity bonds). Following Lee-Carter method (proposed in 1992), actuarial literature has pro- vided several extensions in order to consider di fferent trends observed in European data-set (e.g. the cohort e ffect). The purpose of the paper is to compare the features of main mortality models proposed over the years. Model selection became indeed a primary task with the aim to identify the "best" model. What is meant by best is controversial, but good selection techniques are usu- ally based on a good balance between goodness of fit and simplicity. At this regard, di fferent criteria, mainly based on residual and projected rates analysis, are here used. For sake of comparison, main forecasting methods have been applied to deaths and exposures to risk of male Italian population. Weaknesses and strengths have been emphasized, by underlying how various models pro- vide a di fferent goodness of fit according to di fferent data-sets. At the same time the quality and the variability of forecasted rates have been compared by evaluating the e ect on annuity values. Results confi rm that some models perform better than others but no single model can be de fined as the best method.