Multiperiod Optimal Investment-Consumption Strategies with Mortality Risk and Environment Uncertainty |
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| Authors: | Zhongfei Li PhD Ken Seng Tan ASA CERA PhD Hailiang Yang ASA PhD |
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| Institution: | 1. Department of Risk Management and Insurance , Lingnan (University) College, Sun Yat-sen University , Guangzhou 510275 , P.R. China;2. China Institute for Actuarial Science, Central University of Finance and Economics , Ontario , Canada N2L 3G1;3. Department of Statistics and Actuarial Science , University of Waterloo , Beijing , P.R. China;4. Department of Statistics and Actuarial Science , University of Hong Kong , Pokfulam Road, Hong Kong |
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| Abstract: | Abstract In this article we investigate three related investment-consumption problems for a risk-averse investor: (1) an investment-only problem that involves utility from only terminal wealth, (2) an investment-consumption problem that involves utility from only consumption, and (3) an extended investment-consumption problem that involves utility from both consumption and terminal wealth. Although these problems have been studied quite extensively in continuous-time frameworks, we focus on discrete time. Our contributions are (1) to model these investmentconsumption problems using a discrete model that incorporates the environment risk and mortality risk, in addition to the market risk that is typically considered, and (2) to derive explicit expressions of the optimal investment-consumption strategies to these modeled problems. Furthermore, economic implications of our results are presented. It is reassuring that many of our findings are consistent with the well-known results from the continuous-time models, even though our models have the additional features of modeling the environment uncertainty and the uncertain exit time. |
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