We solve the consumption/investment problem of an agent facing a stochastic mortality intensity. The investment set includes a longevity-linked asset, as a derivative on the force of mortality. In a complete and frictionless market, we derive a closed form solution when the agent has Hyperbolic Absolute Risk Aversion preferences and a fixed financial horizon. Our calibrated numerical analysis on US data shows that individuals optimally invest a large fraction of their wealth in longevity-linked assets in the pre-retirement phase, because of their need to hedge against stochastic fluctuations in their remaining life-time at retirement.

Menoncin, F., Regis, L. (2017). Longevity-linked assets and pre-retirement consumption/portfolio decisions. INSURANCE MATHEMATICS & ECONOMICS, 76, 75-86 [10.1016/j.insmatheco.2017.07.002].

Longevity-linked assets and pre-retirement consumption/portfolio decisions

Regis, Luca
2017-01-01

Abstract

We solve the consumption/investment problem of an agent facing a stochastic mortality intensity. The investment set includes a longevity-linked asset, as a derivative on the force of mortality. In a complete and frictionless market, we derive a closed form solution when the agent has Hyperbolic Absolute Risk Aversion preferences and a fixed financial horizon. Our calibrated numerical analysis on US data shows that individuals optimally invest a large fraction of their wealth in longevity-linked assets in the pre-retirement phase, because of their need to hedge against stochastic fluctuations in their remaining life-time at retirement.
2017
Menoncin, F., Regis, L. (2017). Longevity-linked assets and pre-retirement consumption/portfolio decisions. INSURANCE MATHEMATICS & ECONOMICS, 76, 75-86 [10.1016/j.insmatheco.2017.07.002].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11365/1024466