Optimal annuity demand for general expected utility agents

Carole Bernard, Luca De Gennaro Aquino and Lucia Levante

Insurance: Mathematics and Economics, 2021, vol. 101, issue PA, 70-79

Abstract: We study the robustness of the results of Milevsky and Huang (2018) on the optimal demand for annuities to the choice of the utility function. To do so, we first propose a new way to span the set of all increasing concave utility functions by exploiting a one-to-one correspondence with the set of probability distribution functions. For example, this approach makes it possible to present a five-parameter family of concave utility functions that encompasses a number of standard concave utility functions, e.g., CRRA, CARA and HARA. Second, we develop a novel numerical method to handle the life-cycle model of Yaari (1965) and the annuity equivalent wealth problem for a general utility function. We show that the results of Milevsky and Huang (2018) on the optimal demand for annuities proved in the case of a CRRA and logarithmic utility maximizer hold more generally.

Keywords: Expected utility theory; Annuity equivalent wealth; Longevity risk pooling; Life-cycle model; Annuity puzzle (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:101:y:2021:i:pa:p:70-79

DOI: 10.1016/j.insmatheco.2020.07.004

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