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Optimal consumption and investment with insurer default risk

Bong-Gyu Jang, Hyeng Keun Koo and Seyoung Park

Insurance: Mathematics and Economics, 2019, vol. 88, issue C, 44-56

Abstract: We solve the optimal consumption and investment problem in an incomplete market, where borrowing constraints and insurer default risk are considered jointly. We derive in closed-form the optimal consumption and investment strategies. We find two main results by quantitative analysis. As insurer default risk increases, the proportion of wealth invested in stocks could increase when wealth is small, and decrease when wealth is large. As risk aversion increases, the voluntary annuity demand could increase when insurer default risk is low, and decrease when this risk is high.

Keywords: Optimal consumption; Optimal investment; Insurer default risk; Annuity demand (search for similar items in EconPapers)
JEL-codes: C61 E21 G11 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:88:y:2019:i:c:p:44-56

DOI: 10.1016/j.insmatheco.2019.04.007

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Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

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