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Life insurance decisions under recursive utility

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  • Ninna Reitzel Jensen

Abstract

In this paper, we generalize recursive utility to include lifetime uncertainty and utility from bequest. The generalization applies to discrete-time as well as continuous-time recursive utility, and it is an important step forward in the development of recursive utility. We formalize the problem of optimal consumption, investment, and life insurance choice under recursive utility, and we state a verification theorem with a generalized Hamilton-Jacobi-Bellman equation. Our generalization of recursive utility allows us to study optimal consumption, investment, and life insurance choice under separation of (market) risk aversion, elasticity of inter-temporal substitution, and elasticity of substitution between bequest and future utility. The separation gives rise to hump-shaped consumption patterns as observed in realized consumption.

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  • Ninna Reitzel Jensen, 2019. "Life insurance decisions under recursive utility," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2019(3), pages 204-227, March.
    • Handle: RePEc:taf:sactxx:v:2019:y:2019:i:3:p:204-227
    DOI: 10.1080/03461238.2018.1541025
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    Cited by:

    1. Thomas J. Sargent & John Stachurski, 2024. "Dynamic Programming: Finite States," Papers 2401.10473, arXiv.org.

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