Girosi, Federico, and Gary King. 2007. Understanding the Lee-Carter Mortality Forecasting Method. Copy at http://j.mp/lTXlGe
Abstract:We demonstrate here several previously unrecognized or insufficiently appreciated properties of the Lee-Carter mortality forecasting approach, the dominant method used in both the academic literature and practical applications. We show that this model is a special case of a considerably simpler, and less often biased, random walk with drift model, and prove that the age profile forecast from both approaches will always become less smooth and unrealistic after a point (when forecasting forward or backwards in time) and will eventually deviate from any given baseline. We use these and other properties we demonstrate to suggest when the model would be most applicable in practice.