Household consumption-investment-insurance decisions with uncertain income and market ambiguity

Wang, Ning; Jin, Zhuo; Siu, Tak Kuen; Qiu, Ming

doi:10.1080/03461238.2021.1886981

Cited by 19 publications

(10 citation statements)

References 73 publications

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“…There is also a stream of literature which consider the optimal consumption-investment and life-insurance problem from the viewpoint of a household comprising multiple wage earners, see, e.g., Kenneth Bruhn and Steffensen (2011), Wei et al (2020) and Wang et al (2021). In Wei et al (2020), a couple of wage earners is considered, wherein both individuals independently purchase a life insurance with their partner nominated as the beneficiary.…”

Section: And References Thereinmentioning

confidence: 99%

“…Moreover, the couple has correlated lifetimes, which are modelled using copula and commonshock models. Wang et al (2021), instead, allows the income of a household consisting of two consecutive generations, say, parents and children, to increase in a random and unobservable way and allow for market ambiguity. Finally, a recent contribution in this area is Moagi and Doctor (2022), which proposes a zero-sum differential game between the market, consisting of a risk asset and a risk-free one, and the investor, which is subject to consumption, purchasing life insurance and stochastic income with inflation risk.…”

Section: And References Thereinmentioning

confidence: 99%

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A dynamic game approach for optimal consumption, investment and life insurance problem

Maggistro,

Marino,

Martire

2024

Ann Oper Res

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In this paper, we consider a multi-agent portfolio optimization model with life insurance for two players with random lifetime under a dynamic game approach. Each player is a price-taker and invests in the market to maximize her own utility for consumption and bequest. The market is complete and consists of n different assets, of which $$n-1$$ n - 1 are risky with prices driven by Geometric Brownian motion, while one is risk-free. We analyze both the non-cooperative and cooperative scenarios, and by considering the family of CRRA utility functions, we determine the closed-form expressions of the optimal consumption, investment, and life insurance for both players. A sensitivity analysis is provided both to illustrate the impact of the biometric and risk aversion parameters on the optimal controls and to compare the non-cooperative strategies with the cooperative ones. As a result, we suggest that cooperation favors the consumption optimality, while non-cooperation promotes the coverage of the risk of death.

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Section: And References Thereinmentioning

confidence: 99%

Section: And References Thereinmentioning

confidence: 99%

A dynamic game approach for optimal consumption, investment and life insurance problem

Maggistro,

Marino,

Martire

2024

Ann Oper Res

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“…The O-U process is a continuous-time version of the first-order autoregressive process that has been extensively used to model the dynamics of labor income (see, for example, Deaton 1992). While we cannot guarantee that the solution to the O-U process is always positive, we are able to choose a set of parameters to ensure that the probability of receiving negative labor income is slim, and that a simulated path of the income process is always above zero for the given set of parameters (see Wang et al (2021)).…”

Section: Life Insurance and Wealth Processmentioning

confidence: 99%

Optimal investment-consumption and life insurance strategy with mispricing and model ambiguity

Chen

et al. 2022

Preprint

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In this paper, we consider the optimal investment-consumption and life insurance strategy for a wage earner, who has uncertain labour income described by an Ornstein-Uhlenbeck process. In addition to consumption and purchasing life insurance, the wage earner invests his wealth into the financial market, which consists of a risk-free asset, a market index and a pair of risky assets with mispricing. Our aim is to maximize the expected utilities obtained from consumption, bequest, or his wealth at the end of decision horizon.With dynamic programming approach, we obtain explicit solutions for the optimization problem by solving the corresponding HJB equation. Finally, several numerical examples are presented to illustrate our results.

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“…We address the generalization of Kraft and Steffensen [2008b] to include state-dependent utility. Other recent contributions and generalizations in the area include Wei et al [2020], who consider optimal life insurance in a household with correlated lifetimes; Wang et al [2021], who allow income to increase in a random and non-hedgeable way and allow for market ambiguity; Wang et al [2019], who generalize the financial market to a continuous-time, finite-state self-exciting threshold model; and Doctor [2021], who also generalize the financial market and include inflation risk. Common for the recent literature is that the contributions are driven by generalized financial markets or general insurance risk models whereas our contribution is in the direction of generalized preferences.…”

Section: Introductionmentioning

confidence: 99%

Optimal consumption, investment, and insurance under state-dependent risk aversion

Steffensen

Søe

2023

ASTIN Bull.

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We formalize a consumption–investment–insurance problem with the distinction of a state-dependent relative risk aversion. The state dependence refers to the state of the finite state Markov chain that also formalizes insurable risks such as health and lifetime uncertainty. We derive and analyze the implicit solution to the problem, compare it with special cases in the literature, and illustrate the range of results in a disability model where the relative risk aversion is preserved, decreases, or increases upon disability.

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Household consumption-investment-insurance decisions with uncertain income and market ambiguity

Cited by 19 publications

References 73 publications

A dynamic game approach for optimal consumption, investment and life insurance problem

A dynamic game approach for optimal consumption, investment and life insurance problem

Optimal investment-consumption and life insurance strategy with mispricing and model ambiguity

Optimal consumption, investment, and insurance under state-dependent risk aversion

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