Optimal investment and consumption decision of a family with life insurance
AbstractWe study an optimal portfolio and consumption choice problem of a family that combines life insurance for parents who receive deterministic labor income until the fixed time T. We consider utility functions of parents and children separately and assume that parents have an uncertain lifetime. If parents die before time T, children have no labor income and they choose the optimal consumption and portfolio with remaining wealth and life insurance benefit. The object of the family is to maximize the weighted average of utility of parents and that of children. We obtain analytic solutions for the value function and the optimal policies, and then analyze how the changes of the weight of the parents' utility function and other factors affect the optimal policies.
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Bibliographic InfoArticle provided by Elsevier in its journal Insurance: Mathematics and Economics.
Volume (Year): 48 (2011)
Issue (Month): 2 (March)
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Web page: http://www.elsevier.com/locate/inca/505554
IE13 IB11 Life insurance Optimal investment/consumption Labor income Utility maximization Martingale method;
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- IE1 - Health, Education, and Welfare - - - - -
- IB1 - Health, Education, and Welfare - - - - -
- Lif - Industrial Organization - - - - -
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- Opt - Economic Development, Technological Change, and Growth - - - - -
- inv - - - - - -
- Lab - Industrial Organization - - - - -
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- Uti - - - - - -
- max - - - - - -
- Mar - Business Administration and Business Economics; Marketing; Accounting - - - - -
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