Optimal life insurance purchase and consumption/investment under uncertain lifetime |
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Authors: | Stanley R. Pliska Jinchun Ye |
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Affiliation: | 1. Department of Finance, University of Illinois at Chicago, Chicago, IL 60607, USA;2. Department of Mathematics, Statistics and Computer Science, University of Illinois at Chicago, Chicago, IL 60607, USA |
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Abstract: | In this paper, we consider optimal insurance and consumption rules for a wage earner whose lifetime is random. The wage earner is endowed with an initial wealth, and he also receives an income continuously, but this may be terminated by the wage earner’s premature death. We use dynamic programming to analyze this problem and derive the optimal insurance and consumption rules. Explicit solutions are found for the family of CRRA utilities, and the demand for life insurance is studied by examining our solutions and doing numerical experiments. |
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Keywords: | C51 C61 D91 G11 G22 |
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