Optimal investment and consumption decision of a family with life insurance

Minsuk Kwak, Yong Hyun Shin and U Jin Choi

Insurance: Mathematics and Economics, 2011, vol. 48, issue 2, 176-188

Abstract: We study an optimal portfolio and consumption choice problem of a family that combines life insurance for parents who receive deterministic labor income until the fixed time T. We consider utility functions of parents and children separately and assume that parents have an uncertain lifetime. If parents die before time T, children have no labor income and they choose the optimal consumption and portfolio with remaining wealth and life insurance benefit. The object of the family is to maximize the weighted average of utility of parents and that of children. We obtain analytic solutions for the value function and the optimal policies, and then analyze how the changes of the weight of the parents' utility function and other factors affect the optimal policies.

Keywords: IE13; IB11; Life; insurance; Optimal; investment/consumption; Labor; income; Utility; maximization; Martingale; method (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:48:y:2011:i:2:p:176-188

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