Household consumption, investment and life insurance
This paper develops a continuous-time Markov model for utility optimization of households. The household optimizes expected future utility from consumption by controlling consumption, investments and purchase of life insurance for each person in the household. The optimal controls are investigated in the special case of a two-person household, and we present graphics illustrating how differences between the two persons affect the controls.
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References listed on IDEAS
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- Kraft, Holger & Steffensen, Mogens, 2008. "Optimal Consumption and Insurance: A Continuous-time Markov Chain Approach," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 38(01), pages 231-257, May.
- Jay H. Hong & Jose-Victor Rios-Rull, 2004.
"Life insurance and household consumption,"
04-10, Federal Reserve Bank of Philadelphia.
- Merton, Robert C., 1971.
"Optimum consumption and portfolio rules in a continuous-time model,"
Journal of Economic Theory,
Elsevier, vol. 3(4), pages 373-413, December.
- R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Richard, Scott F., 1975. "Optimal consumption, portfolio and life insurance rules for an uncertain lived individual in a continuous time model," Journal of Financial Economics, Elsevier, vol. 2(2), pages 187-203, June.
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