Annuitization and asset allocation under exponential utility

Xiaoqing Liang and Virginia R. Young

Insurance: Mathematics and Economics, 2018, vol. 79, issue C, 167-183

Abstract: We find the optimal investment, consumption, and annuitization strategies for a retiree who wishes to maximize her expected discounted utility of lifetime consumption. We assume that the retiree’s preferences exhibit constant absolute risk aversion (CARA), that is, the retiree’s utility function is exponential. The retiree invests in a financial market with one riskless and one risky asset, the so-called Black–Scholes market. Moreover, the retiree may purchase single-premium immediate life annuity income that is payable continuously, and she may purchase this life annuity income at any time and for any amount, subject to the limit of her available wealth.

Keywords: Life annuities; Optimal consumption; Optimal investment; Stochastic control; Free-boundary problem (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:79:y:2018:i:c:p:167-183

DOI: 10.1016/j.insmatheco.2018.01.005

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