Optimal smooth consumption and annuity design

Kenneth Bruhn and Mogens Steffensen

Journal of Banking & Finance, 2013, vol. 37, issue 8, 2693-2701

Abstract: We propose an optimization criterion that yields extraordinary consumption smoothing compared to the well known results of the life-cycle model. Under this criterion we solve the related consumption and investment optimization problem faced by individuals with preferences for intertemporal stability in consumption. We find that the consumption and investment patterns demanded under the optimization criterion is in general offered as annuity benefits from products in the class of ‘Formula Based Smoothed Investment-Linked Annuities’.

Keywords: Stochastic control; Quadratic optimization; Linear regulation; Consumption smoothing; Formula Based Smoothed Investment-Linked Annuities (search for similar items in EconPapers)
JEL-codes: D01 D14 D91 G02 G11 G22 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:8:p:2693-2701

DOI: 10.1016/j.jbankfin.2013.03.015

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