Optimal consumption, investment, and insurance under state-dependent risk aversion

Mogens Steffensen, Julie Bjorner Soe*

*Corresponding author for this work

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4 Citations (Scopus)
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Abstract

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.

Original languageEnglish
JournalASTIN Bulletin
Volume53
Issue number1
Pages (from-to)104-128
Number of pages25
ISSN0515-0361
DOIs
Publication statusPublished - 2023

Bibliographical note

Publisher Copyright:
© The Author(s), 2023. Published by Cambridge University Press on behalf of The International Actuarial Association.

Keywords

  • Hamilton-Jacobi-Bellman equation
  • Multistate models
  • state-dependent utility
  • the disability model

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