Modelling lifetime dependence for older ages using a multivariate Pareto distribution

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The main driver of longevity risk is uncertainty in old-age mortality, especially surrounding potential dependence structures. We investigate a multivariate Pareto distribution that allows for the exploration of a variety of applications, from portfolios of standard annuities to joint-life annuity products for couples. Given the anticipated continued increase of supercentenarians, the heavy-tailed nature of the Pareto distribution is appropriate for this application. In past work, it has been shown that even a little dependence between lives can lead to much higher uncertainty. Therefore, the ability to assess and incorporate the appropriate dependence structure, whilst allowing for extreme observations, significantly improves the pricing and risk management of life-benefit products.