Optimal consumption, investment, and insurance under state-dependent risk aversion
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Optimal consumption, investment, and insurance under state-dependent risk aversion. / Steffensen, Mogens; Soe, Julie Bjorner.
In: ASTIN Bulletin, Vol. 53, No. 1, 2023, p. 104-128.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Optimal consumption, investment, and insurance under state-dependent risk aversion
AU - Steffensen, Mogens
AU - Soe, Julie Bjorner
N1 - Publisher Copyright: © The Author(s), 2023. Published by Cambridge University Press on behalf of The International Actuarial Association.
PY - 2023
Y1 - 2023
N2 - We formalize a consumption-investment-insurance problem with the distinction of a state-dependent relative risk aversion. The state dependence refers to the state of the finite state Markov chain that also formalizes insurable risks such as health and lifetime uncertainty. We derive and analyze the implicit solution to the problem, compare it with special cases in the literature, and illustrate the range of results in a disability model where the relative risk aversion is preserved, decreases, or increases upon disability.
AB - We formalize a consumption-investment-insurance problem with the distinction of a state-dependent relative risk aversion. The state dependence refers to the state of the finite state Markov chain that also formalizes insurable risks such as health and lifetime uncertainty. We derive and analyze the implicit solution to the problem, compare it with special cases in the literature, and illustrate the range of results in a disability model where the relative risk aversion is preserved, decreases, or increases upon disability.
KW - Hamilton-Jacobi-Bellman equation
KW - Multistate models
KW - state-dependent utility
KW - the disability model
UR - http://www.scopus.com/inward/record.url?scp=85149929538&partnerID=8YFLogxK
U2 - 10.1017/asb.2022.25
DO - 10.1017/asb.2022.25
M3 - Journal article
AN - SCOPUS:85149929538
VL - 53
SP - 104
EP - 128
JO - ASTIN Bulletin: The Journal of the IAA
JF - ASTIN Bulletin: The Journal of the IAA
SN - 0515-0361
IS - 1
ER -
ID: 359612153