posted on 2019-05-03, 11:14authored byBong-Gyu Jang, Hyeng Keun Koo, Seyoung Park
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.
History
School
Business and Economics
Department
Business
Published in
Insurance: Mathematics and Economics
Volume
88
Pages
44-56
Citation
JANG, B-G., KOO, H.K. and PARK, S., 2019. Optimal consumption and investment with insurer default risk. Insurance: Mathematics and Economics, 88, pp.44-56.
This paper was accepted for publication in the journal Insurance: Mathematics and Economics and the definitive published version is available at https://doi.org/10.1016/j.insmatheco.2019.04.007