Optimal Life Insurance and Annuity Demand with Jump Diffusion and Regime Switching

Jinhui Zhang (), Sachi Purcal and Jiaqin Wei
Additional contact information
Jinhui Zhang: Macquarie University
Sachi Purcal: East China Normal University
Jiaqin Wei: East China Normal University

A chapter in Advances in Econometrics, Operational Research, Data Science and Actuarial Studies, 2022, pp 515-530 from Springer

Abstract: Abstract Classic Merton optimal life-cycle portfolio and consumption models are based on diffusion models for risky assets. In this paper, we extend the Richard’s (1975) optimal life-cycle model by allowing jumps and regime switching in the diffusion of risky assets. We develop a system of paired Hamilton–Jacobi–Bellman (HJB) equations. Using numerical methods, we obtain the results of agents’ behaviour. Our findings are that agents would be more conservative in consumption and annuitisation when the economic environment is more volatile and the bequest motive is stronger. However, under certain conditions, agents might increase their exposure to risky assets.

Keywords: Stochastic optimal control; Richard’s model; Optimal investment; Jumps; Regime switching (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-030-85254-2_31

Ordering information: This item can be ordered from
http://www.springer.com/9783030852542

DOI: 10.1007/978-3-030-85254-2_31

Access Statistics for this chapter

More chapters in Contributions to Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().