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Optimal investment-consumption and life insurance selection problem under inflation. A BSDE approach

Calisto Guambe and Rodwell Kufakunesu

Papers from arXiv.org

Abstract: We discuss an optimal investment, consumption and insurance problem of a wage earner under inflation. Assume a wage earner investing in a real money account and three asset prices, namely: a real zero coupon bond, the inflation-linked real money account and a risky share described by jump-diffusion processes. Using the theory of quadratic-exponential backward stochastic differential equation (BSDE) with jumps approach, we derive the optimal strategy for the two typical utilities (exponential and power) and the value function is characterized as a solution of BSDE with jumps. Finally, we derive the explicit solutions for the optimal investment in both cases of exponential and power utility functions for a diffusion case.

New Economics Papers: this item is included in nep-ias, nep-mac and nep-upt
Date: 2017-11
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