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Optimal investment and life insurance strategies under minimum and maximum constraints

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  • Nielsen, Peter Holm
  • Steffensen, Mogens

Abstract

We derive optimal strategies for an individual life insurance policyholder who can control the asset allocation as well as the sum insured (the amount to be paid out upon death) throughout the policy term. We first consider the problem in a pure form without constraints (except nonnegativity on the sum insured) and then in a more general form with minimum and/or maximum constraints on the sum insured. In both cases we also provide the optimal life insurance strategies in the case where risky-asset investments are not allowed (or not taken into consideration), as in basic life insurance mathematics. The optimal constrained strategies are somewhat more complex than the unconstrained ones, but the latter can serve to ease the understanding and implementation of the former.

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  • Nielsen, Peter Holm & Steffensen, Mogens, 2008. "Optimal investment and life insurance strategies under minimum and maximum constraints," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 15-28, August.
    • Handle: RePEc:eee:insuma:v:43:y:2008:i:1:p:15-28
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    References listed on IDEAS

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    Cited by:

    1. Lee, Hangsuck & Ryu, Doojin & Son, Jihoon, 2022. "Insurance-adjusted valuation, decision making, and capital return," International Review of Financial Analysis, Elsevier, vol. 84(C).
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    4. Chen, An & Hentschel, Felix & Klein, Jakob K., 2015. "A utility- and CPT-based comparison of life insurance contracts with guarantees," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 327-339.
    5. Liang, Zongxia & Zhao, Xiaoyang, 2016. "Optimal mean–variance efficiency of a family with life insurance under inflation risk," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 164-178.

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