Dynamic Portfolio Choice with Stochastic Wage and Life Insurance

Xudong Zeng, Yuling Wang and James M. Carson

North American Actuarial Journal, 2015, vol. 19, issue 4, 256-272

Abstract: We study optimal insurance, consumption, and portfolio choice in a framework where a family purchases life insurance to protect the loss of the wage earner's human capital. Explicit solutions are obtained by employing constant absolute risk aversion utility functions. We show that the optimal life insurance purchase is not a monotonic function of the correlation between the wage and the financial market. Meanwhile, the life insurance decision is explicitly affected by the family's risk preferences in general. The model also predicts that a family uses life insurance and investment portfolio choice to hedge stochastic wage risk.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/10920277.2015.1041987 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uaajxx:v:19:y:2015:i:4:p:256-272

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uaaj20

DOI: 10.1080/10920277.2015.1041987

Access Statistics for this article

North American Actuarial Journal is currently edited by Kathryn Baker

More articles in North American Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().