Optimal consumption–investment and life-insurance purchase strategy for couples with correlated lifetimes

Jiaqin Wei, Xiang Cheng, Zhuo Jin and Hao Wang

Insurance: Mathematics and Economics, 2020, vol. 91, issue C, 244-256

Abstract: This paper presents a technique to solve the problem where a couple aims to optimize their consumption, investment, and life-insurance purchasing strategies, thereby maximizing their family objective until retirement. Assumed correlated lifetimes of the two wage earners are modeled by using both the copula and common-shock models. Subsequently, closed-form solutions are obtained for determination of the optimal strategies in both the copula and a special case of the common-shock models. As observed, use of the copula model is more advantageous in its provision of closed-form strategies and ability to distinguish mortality impacts. The optimization problem considered herein is investigated under a Markovian setting and solved using the Hamilton–Jacobi–Bellman equation. Numerical examples are also provided to illustrate the utility of the proposed optimization strategy.

Keywords: Life insurance; Consumption; Investment; Copula; Common-shock model (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:91:y:2020:i:c:p:244-256

DOI: 10.1016/j.insmatheco.2020.02.006

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