Optimal investment, consumption and life insurance under mean-reverting returns: The complete market solution

Traian A. Pirvu and Huayue Zhang

Insurance: Mathematics and Economics, 2012, vol. 51, issue 2, 303-309

Abstract: This paper considers the problem of optimal investment, consumption and life insurance acquisition for a wage earner who has CRRA (constant relative risk aversion) preferences. The market model is complete, continuous, the uncertainty is driven by Brownian motion and the stock price has mean reverting drift. The problem is solved by dynamic programming approach and the HJB equation is shown to have closed form solution. Numerical experiments explore the impact market price of risk has on the optimal strategies.

Keywords: Portfolio allocation; Life insurance; Mean reverting drift (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:51:y:2012:i:2:p:303-309

DOI: 10.1016/j.insmatheco.2012.05.002

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