Optimal investment and consumption decision of a family with life insurance

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We 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. (C) 2010 Elsevier B.V. All rights reserved.
Publisher
Elsevier Science Bv
Issue Date
2011-03
Language
English
Article Type
Article
Keywords

CONTINUOUS-TIME MODEL; UNCERTAIN LIFETIME; PREFERENCE CHANGE; OPTIMAL PORTFOLIO; DEMAND; SELECTION; CHOICE

Citation

INSURANCE MATHEMATICS & ECONOMICS, v.48, no.2, pp.176 - 188

ISSN
0167-6687
URI
http://hdl.handle.net/10203/95884
Appears in Collection
MA-Journal Papers(저널논문)
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