Dynamic Portfolio Choice with Stochastic Wage and Life Insurance
| Autor: | Xudong Zeng, James M. Carson, Yuling Wang |
|---|---|
| Rok vydání: | 2015 |
| Předmět: |
Statistics and Probability
Consumption (economics) Economics and Econometrics Actuarial science media_common.quotation_subject Financial market Wage Monotonic function Human capital Key person insurance Portfolio insurance Replicating portfolio Life insurance Auto insurance risk selection Economics Econometrics Portfolio Statistics Probability and Uncertainty Hedge (finance) media_common |
| Zdroj: | North American Actuarial Journal. 19:256-272 |
| ISSN: | 2325-0453 1092-0277 |
| DOI: | 10.1080/10920277.2015.1041987 |
| Popis: | 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. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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