Longevity-linked assets and pre-retirement consumption/portfolio decisions

Francesco Menoncin () and Luca Regis ()

Insurance: Mathematics and Economics, 2017, vol. 76, issue C, 75-86

Abstract: We solve the consumption/investment problem of an agent facing a stochastic mortality intensity. The investment set includes a longevity-linked asset, as a derivative on the force of mortality. In a complete and frictionless market, we derive a closed form solution when the agent has Hyperbolic Absolute Risk Aversion preferences and a fixed financial horizon. Our calibrated numerical analysis on US data shows that individuals optimally invest a large fraction of their wealth in longevity-linked assets in the pre-retirement phase, because of their need to hedge against stochastic fluctuations in their remaining life-time at retirement.

Keywords: Longevity risk; Pre-retirement savings; Portfolio choice; HARA preferences; Longevity-linked asset; Stochastic mortality (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:76:y:2017:i:c:p:75-86

DOI: 10.1016/j.insmatheco.2017.07.002

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