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Abstract
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In the classical approach to modeling mortality among a homogeneous group of individuals, one chooses a random variable T, representing the future lifetime of a person in this group. In stochastic mortality, one recognizes that this random variable T is itself uncertain, and it is replaced by a collection of random variables T_w, where w ranges over the points of some other other probability space, representing states of nature. We discuss the implications of this concept for calculating option prices on mortality contingent claims, annuity and insurance pricing, and the prospects for hedging longevity risk on annuity contracts by selling life insurance. |
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