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Portfolio Choice And Life Insurance
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Book Synopsis Portfolio Choice and Life Insurance by : Moshe A. Milevsky
Download or read book Portfolio Choice and Life Insurance written by Moshe A. Milevsky and published by . This book was released on 2009 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study a class of portfolio choice problems that combine life insurance and labor income under constant relative risk aversion preferences (CRRA) preferences for consumption, within the optimal control framework pioneered by Merton (1969, 1971). Our model differs from previous research by (i) focusing attention on the correlation between human capital and financial capital, and (ii) modeling the utility of the family as opposed to separating consumption and bequest. From a technical point of view we show how the underlying Hamilton-Jacobi-Bellman (HJB) equation can be simplified using a similarity reduction technique, which then allows for the implementation of an efficient numerical solution. And, for reasonable financial economic parameter values, a closed-form approximation is derived which greatly simplifies the numerical calculations. A variety of example illustrating our numerical algorithm are also provided. Our main qualitative result is that households whose primary breadwinner's wages are negatively correlated with financial market returns, should optimally purchase more life insurance and can afford to take more risky positions with their financial portfolio. In addition, we find that the optimal face value of life insurance is remarkably insensitive to the family's risk aversion.
Book Synopsis The Demand for Life Insurance by : David F. Babbel
Download or read book The Demand for Life Insurance written by David F. Babbel and published by . This book was released on 1988 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Dynamic Portfolio Choice with Stochastic Wage and Life Insurance by : Xudong Zeng
Download or read book Dynamic Portfolio Choice with Stochastic Wage and Life Insurance written by Xudong Zeng and published by . This book was released on 2015 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 CARA 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 is explicitly affected by the family's risk preferences in general. The model also predicts that a family uses the life insurance and the investment together to hedge the risk from the stochastic wage.
Book Synopsis Behavioral Aspects of Household Portfolio Choice by : In Do Hwang
Download or read book Behavioral Aspects of Household Portfolio Choice written by In Do Hwang and published by . This book was released on 2017 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates how loss-aversion affects individuals' decisions on savings and insurance purchase. Specifically, this paper empirically tests if prospect theory's loss aversion decreases insurance demand and increases savings demand. Prospect theory predicts that boundedly rational consumers may view pure protection insurance, such as term-life insurance, as a risky investment because the insured may lose premiums if a bad event does not occur within the pre-specified term. Hence, those who are fairly sensitive to the potential loss choose not to buy term-life insurance. Instead, they may choose a more safe option to prepare for uncertain future events by increasing precautionary saving. This paper tests such prediction using individual-level data from the Health and Retirement Study (HRS) and finds empirical evidence consistent with the prediction: loss-averse individuals are less likely to own term-life insurance and more likely to own whole-life insurance, which serves as a partial savings instrument. These individuals also hold a higher level of wealth than others, suggesting that they tend to save more (presumably for precautionary motives), all other things being equal.
Book Synopsis Strategic Asset Allocation by : John Y. Campbell
Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
Book Synopsis Optimal Portfolio Selection with Life Insurance Under Inflation Risk by : Minsuk Kwak
Download or read book Optimal Portfolio Selection with Life Insurance Under Inflation Risk written by Minsuk Kwak and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates a continuous-time optimal consumption, investment, and life insurance decision problem of a family under inflation risk. In the financial market, there is a liquid inflation-linked index bond market which can be utilized to hedge the inflation risk. The explicit solutions for the optimal strategies including consumption rate, investment for each financial asset, and life insurance premium are derived for constant relative risk aversion (CRRA) utility case using martingale approach. The roles of an index bond are investigated and it is verified that they depend on market parameters. We analyze the effects of market parameters on the optimal strategies with focus on the demand for index bond and optimal life insurance premium. Especially, the change of inflation rate has considerable impact on optimal life insurance premium.
Book Synopsis Dynamic Portfolio Choice with Pension Annuities and Life Insurance by : Wolfram J. Horneff
Download or read book Dynamic Portfolio Choice with Pension Annuities and Life Insurance written by Wolfram J. Horneff and published by . This book was released on 2008 with total page 165 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays on Consumption, Insurance, and Portfolio Choice Over the Life Cycle by : Lorenz S. Schendel
Download or read book Essays on Consumption, Insurance, and Portfolio Choice Over the Life Cycle written by Lorenz S. Schendel and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Portfolio Choice With Puts by : Moshe A. Milevsky
Download or read book Portfolio Choice With Puts written by Moshe A. Milevsky and published by . This book was released on 2008 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we investigate the actual portfolio choice and asset allocation behavior of individuals who acquire insurance in the form of an out - of - the - money long dated put option on their investment funds. We compare their allocations against those who do not elect and pay for this type of protection; dubbed a longevity put. Using a unique database of nearly a million variable annuity (VA) policyholders collected by seven different insurance companies, we find that these investors take on 5% to 30% additional risky/equity exposure when the longevity put option is selected. And, when this longevity put option is not purchased - so the investment portfolio resembles a conventional mutual fund - we confirm the classical life-cycle age phased reduction in equity.We offer a rudimentary model of utility - maximizing behavior in the presence of this longevity put that indeed justifies the increased allocation to risk, provided the investor is willing, able and understands to exercise the annuity option if - and - when it matures in the money. This, of course, is debatable given the long standing body of evidence - first documented by Modigliani(1986) - that individuals intensely dislike annuitization despite its welfare enhancing properties.Regardless, we believe our paper is the first to examine actual asset allocations within variable annuity policies, which is currently a $1.5 trillion dollar market in the U.S. and is expected to grow as aging baby boomers take control of their own retirement assets.
Book Synopsis Public Policies and Household Saving by : James M. Poterba
Download or read book Public Policies and Household Saving written by James M. Poterba and published by University of Chicago Press. This book was released on 2007-12-01 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt: The declining U.S. national saving rate has prompted economists and policymakers to ask, should the federal government encourage household saving, and if so, through which policies? In order to better understand saving programs, this volume provides a systematic and detailed description of saving policies in the G-7 industrialized nations: the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom. Each of the seven chapters focuses on one country and addresses a core set of topics: types of accumulated household savings and debt; tax policies toward capital income; saving in the form of public and private pensions, including Social Security and similar programs; saving programs that receive special tax treatment; and saving through insurance. This detailed summary of the saving incentives of the G-7 nations will be an invaluable reference for policymakers and academics interested in personal saving behavior.
Book Synopsis Optimal Portfolio Choice with Health-Contingent Income Products by : Shang Wu
Download or read book Optimal Portfolio Choice with Health-Contingent Income Products written by Shang Wu and published by . This book was released on 2016 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Whereas there is ample evidence that life-contingent income products (life annuities) have the potential to improve individual welfare, combining them with health-contingent income products (resulting in so-called life care annuities) would serve to further increase welfare for individuals who are exposed to uncertain out-of-pocket healthcare expenditure later in life. We develop a life-cycle model of annuitization, consumption, and investment decisions for a single retired individual who faces stochastic capital market returns, uncertain health status, differential mortality risks, and uncertain out-of-pocket healthcare expenditure with cost of dying. Using the calibrated model, we show that individuals who are eligible to purchase life care annuities instead of standard life annuities increase their level of annuitization by around 12 percentage points. Health status at retirement affects the extent to which the insurance feature and the pricing advantage of life care annuities contribute to this increment, with end-of-life healthcare expenditure being of particular importance. Also, life care annuities allow individuals to consume more throughout their retirement and to invest a higher proportion of their liquid wealth in the risky asset. They are willing to pay a loading up to 21% for having access to life care annuities.
Book Synopsis Life-Cycle Asset Allocation with Annuity Markets by : Wolfram J. Horneff
Download or read book Life-Cycle Asset Allocation with Annuity Markets written by Wolfram J. Horneff and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive the optimal portfolio choice over the life-cycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to incomplete annuity markets offering a hedge against mortality risk. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life, to earn the equity premium, and to ensure estate for the heirs. Furthermore, we assess the importance of common explanations for limited participation in annuity markets.
Book Synopsis Optimal Consumption and Portfolio Choice for Retirees by : Lulu Zeng
Download or read book Optimal Consumption and Portfolio Choice for Retirees written by Lulu Zeng and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: I solve the optimal consumption and portfolio choice problem of a retiree who is endowed with both liquid assets and pre-annuitized wealth in Social Security. The retiree faces an investment menu including an equity index, a risk-free bond, a life insurance and a variable annuity. I find that the added benefit of annuitization timing can be valuable for variable annuity. The utility loss due to the irreversibility of pre-annuitized wealth can be big, and a transition from the current pay-as-you-go Social Security system to a personal investmentbased system benefits retirees with high fraction of pre-annuitized wealth the most. Purchasing life insurance is effective in reducing the adverse effect of over-annuitization only for impatient retirees with low Elasticity of Intergenerational Substitution. Interestingly, the utility loss due to the irreversibility of a future life annuity purchase is small for the retiree.
Book Synopsis The Determinants of Portfolio Selection by Life Insurance Companies and the Effects of Monetary Policy on Their Portfolios by : Ikechukwu C. Nwobodo
Download or read book The Determinants of Portfolio Selection by Life Insurance Companies and the Effects of Monetary Policy on Their Portfolios written by Ikechukwu C. Nwobodo and published by . This book was released on 1975 with total page 252 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Recalibrating Retirement Spending and Saving by : John Ameriks
Download or read book Recalibrating Retirement Spending and Saving written by John Ameriks and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: As Baby Boomers make the transition into their 60s, they have focused policymakers and the media's attention onto how this generation will manage the retirement phase of its lifetime. This volume acknowledges that many, though not all, in this older cohort have accumulated substantial assets, so for them, the question is what will they do with what they have? We offer a detailed exploration of how people entering retirement will deploy their accumulated assets in the near and long term, so to best meet their myriad spending, investment, and other objectives. The book offers readers an invaluable study of emerging issues regarding assets and expectations on the verge of retirement, including uncertainty regarding life expectancy and morbidity. It is composed of chapters from a distinguished set of authors including a Nobel Laureate and a wonderful mix of academics and practitioners from the legal, financial, and economic fields. This volume represents an invaluable addition to the Pension Research Council / Oxford University Press series. It will be especially useful for analysts and consumers concerned with ways to position, invest, manage, and spend retirement assets; financial advisers and academics debating ways to effectively manage assets in retirement; and lawyers and policy experts evaluating regulation for the retirement payout marketplace.
Book Synopsis Handbook of the Fundamentals of Financial Decision Making by : Leonard C. MacLean
Download or read book Handbook of the Fundamentals of Financial Decision Making written by Leonard C. MacLean and published by World Scientific. This book was released on 2013 with total page 941 pages. Available in PDF, EPUB and Kindle. Book excerpt: This handbook in two parts covers key topics of the theory of financial decision making. Some of the papers discuss real applications or case studies as well. There are a number of new papers that have never been published before especially in Part II.Part I is concerned with Decision Making Under Uncertainty. This includes subsections on Arbitrage, Utility Theory, Risk Aversion and Static Portfolio Theory, and Stochastic Dominance. Part II is concerned with Dynamic Modeling that is the transition for static decision making to multiperiod decision making. The analysis starts with Risk Measures and then discusses Dynamic Portfolio Theory, Tactical Asset Allocation and Asset-Liability Management Using Utility and Goal Based Consumption-Investment Decision Models.A comprehensive set of problems both computational and review and mind expanding with many unsolved problems are in an accompanying problems book. The handbook plus the book of problems form a very strong set of materials for PhD and Masters courses both as the main or as supplementary text in finance theory, financial decision making and portfolio theory. For researchers, it is a valuable resource being an up to date treatment of topics in the classic books on these topics by Johnathan Ingersoll in 1988, and William Ziemba and Raymond Vickson in 1975 (updated 2 nd edition published in 2006).
Book Synopsis Determinants of Life Insurance Consumption across Countries by : Thorsten Beck
Download or read book Determinants of Life Insurance Consumption across Countries written by Thorsten Beck and published by World Bank Publications. This book was released on 2002 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:
