An Overview of Optimal Life Insurance Purchase, Consumption and Investment Problems

• Type: Article in International Conference Proceedings Book
• Date: 2011

Authors

Duarte, I (Author) Other; Pinheiro, D (Author) Other; Alberto A. Pinto (Author) FCUP; Pliska, SR (Author) Other

Conference proceedings International

Title: DYNAMICS, GAMES AND SCIENCE I

Pages: 271-286

International Conference on Dynamical Systems and Game Theory in Honor of Mauricio Peixoto and David Rand

Univ Minho, Braga, PORTUGAL, SEP 08-12, 2008

Indexing

ISI Web of Knowledge - 12 Citations

Scopus - 12 Citations

Other information

Authenticus ID: P-00P-6E7

DOI: 10.1007/978-3-642-11456-4_18

Abstract (EN): We provide an extension to Merton's famous continuous time model of optimal consumption and investment, in the spirit of previous works by Pliska and Ye, to allow for a wage earner to have a random lifetime and to use a portion of the income to purchase life insurance in order to provide for his estate, while investing his savings in a financial market consisting of one risk-free security and an arbitrary number of risky securities whose diffusive terms are driven by a multi-dimensional Brownian motion. The wage earner's problem is to find the optimal consumption, investment, and insurance purchase decisions in order to maximize expected utility of consumption and of the size of the estate in the event of premature death, and of the size of the estate at the time of retirement. Dynamic programming methods are used to obtain explicit solutions for the case of constant relative risk aversion utility functions, and new results are presented together with the corresponding economic interpretations.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 16