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Life Insurance and Subsistence Consumption with an Exponential Utility

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  • Ho-Seok Lee

    (Department of Mathematics, Kwangwoon University, Seoul 01897, Korea)

Abstract

In this paper, we derive an explicit solution to the utility maximization problem of an individual with mortality risk and subsistence consumption constraint. We adopt an exponential utility for the individual’s consumption and the martingale and duality method is employed. From the explicit solution, we exhibit how the mortality intensity and subsistence consumption constraint affect, separately and together, portfolio, consumption and life insurance purchase.

Suggested Citation

  • Ho-Seok Lee, 2021. "Life Insurance and Subsistence Consumption with an Exponential Utility," Mathematics, MDPI, vol. 9(4), pages 1-10, February.
    • Handle: RePEc:gam:jmathe:v:9:y:2021:i:4:p:358-:d:497483
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    References listed on IDEAS

    as
    1. Byung Hwa Lim & Yong Shin, 2011. "Optimal investment, consumption and retirement decision with disutility and borrowing constraints," Quantitative Finance, Taylor & Francis Journals, vol. 11(10), pages 1581-1592.
    2. Gyoocheol Shim & Yong Hyun Shin, 2014. "Portfolio Selection with Subsistence Consumption Constraints and CARA Utility," Mathematical Problems in Engineering, Hindawi, vol. 2014, pages 1-6, April.
    3. Lim, Byung Hwa & Lee, Ho-Seok & Shin, Yong Hyun, 2018. "The effects of pre-/post-retirement downside consumption constraints on optimal consumption, portfolio, and retirement," Finance Research Letters, Elsevier, vol. 25(C), pages 213-221.
    4. Lim, Byung Hwa & Kwak, Minsuk, 2016. "Bequest motive and incentive to retire: Consumption, investment, retirement, and life insurance strategies," Finance Research Letters, Elsevier, vol. 16(C), pages 19-27.
    5. Jang, Bong-Gyu & Lee, Ho-Seok, 2016. "Retirement with risk aversion change and borrowing constraints," Finance Research Letters, Elsevier, vol. 16(C), pages 112-124.
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    Cited by:

    1. Li, Xun & Yu, Xiang & Zhang, Qinyi, 2023. "Optimal consumption and life insurance under shortfall aversion and a drawdown constraint," Insurance: Mathematics and Economics, Elsevier, vol. 108(C), pages 25-45.

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