Optimal consumption–investment and life-insurance purchase strategy for couples with correlated lifetimes

Jiaqin Wei, Xiang Cheng, Zhuo Jin, Hao Wang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

Abstract

This paper presents a technique to solve the problem where a couple aims to optimize their consumption, investment, and life-insurance purchasing strategies, thereby maximizing their family objective until retirement. Assumed correlated lifetimes of the two wage earners are modeled by using both the copula and common-shock models. Subsequently, closed-form solutions are obtained for determination of the optimal strategies in both the copula and a special case of the common-shock models. As observed, use of the copula model is more advantageous in its provision of closed-form strategies and ability to distinguish mortality impacts. The optimization problem considered herein is investigated under a Markovian setting and solved using the Hamilton–Jacobi–Bellman equation. Numerical examples are also provided to illustrate the utility of the proposed optimization strategy.

Original languageEnglish
Pages (from-to)244-256
Number of pages13
JournalInsurance: Mathematics and Economics
Volume91
DOIs
Publication statusPublished - Mar 2020
Externally publishedYes

Keywords

  • Common-shock model
  • Consumption
  • Copula
  • Investment
  • Life insurance

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