Demographic Modeling Via 3-dimensional Markov Chains

TL;DR

This paper introduces a novel three-dimensional Markov chain model for demographic simulation, enabling more accurate forecasting of population segments and financial flows in pension and public institutions.

Contribution

The paper develops a new probabilistic demographic model that incorporates financial flow estimation, enhancing actuarial analysis and demographic forecasting capabilities.

Findings

Model successfully applied to real data from a public institution.

Provides reliable estimates of population and financial flows.

Enhances actuarial analysis with a comprehensive probabilistic approach.

Abstract

This article presents a new model for demographic simulation which can be used to forecast and estimate the number of people in pension funds (contributors and retirees) as well as workers in a public institution. Furthermore, the model introduces opportunities to quantify the financial ows coming from future populations such as salaries, contributions, salary supplements, employer contribution to savings/pensions, among others. The implementation of this probabilistic model will be of great value in the actuarial toolbox, increasing the reliability of the estimations as well as allowing deeper demographic and financial analysis given the reach of the model. We introduce the mathematical model, its first moments, and how to adjust the required probabilities, showing at the end an example where the model was applied to a public institution with real data.