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Property Insurance, Portfolio Selection and their Interdependence


  • Fwu-Ranq Chang


This paper studies the interdependence between property insurance and portfolio selection. The insurance premium of property loss is shown to play the role of subsistence consumption in the analysis. Then, "security" becomes a necessity good and an increase in any insurance parameter would make the investor more "conservative." The effect of a stock market parameter on the marginal propensity to insure is shown to be opposite that on the marginal propensity to consume. Consequently, an increase in volatility would encourage those with a greater-than-unity relative risk aversion to purchase more insurance at the expense of current consumption.

Suggested Citation

  • Fwu-Ranq Chang, 2008. "Property Insurance, Portfolio Selection and their Interdependence," CESifo Working Paper Series 2260, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2260

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    References listed on IDEAS

    1. Chang,Fwu-Ranq, 2009. "Stochastic Optimization in Continuous Time," Cambridge Books, Cambridge University Press, number 9780521541947, March.
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    More about this item


    insurance premium; subsistence consumption; portfolio substitution; optimal saving under uncertainty;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies


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