Market Estimate of Aging Progress

Sandy Madole (
Sat, 16 Aug 1997 10:08:51 -0400

Current market prices embody estimates of the rates at which longevity
will improve. If you disagree with the market, maybe you should put
your money where your mouth is :-). Robin

"The Future of Old-Age Longevity: Competitive Pricing of
Mortality Contingent Claims"

University of Chicago
University of Chicago

Date: Undated

Contact: Charles Mullin
Postal: University of Chicago, Dept. of Economics,
1126 East 59th Street, Chicago, IL 60637
Phone: (773) 256-6339
Fax: Not available

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The future course of old-age mortality is of great
importance to public sector expenditures in countries where
old-age programs, such as Social Security and Medicare in
the US, account for large fractions of the public budget.
This paper argues that the competitive market prices of
mortality contingent claims, such as annuities and life-
insurance, contain information which allow one to infer the
opinion of the market regarding the pace of the continued
increase in old-age longevity. The paper develops methods to
identify and estimate the mortality implicit in the market
prices of such claims by identifying survival functions from
prices of contracts that differ in their duration. Utilizing
these methods, we provide estimates using cohort-specific
prices of US term life insurance contracts in 1990-96 for
individuals aged 60 in each calendar year. Our main finding
is that the mortality patterns inferred from these prices
indicate a continued decline in cohort-specific mortality
at rates equal to or greater than recent historical trends;
about a 5 percent reduction in relative terms in the
mortality hazards per successive cohort.

JEL Classification: G22, I12