scholarly journals LIFE INSURANCE AND PENSION CONTRACTS I: THE TIME ADDITIVE LIFE CYCLE MODEL

2014 ◽  
Vol 45 (1) ◽  
pp. 1-47 ◽  
Author(s):  
Knut K. Aase
Keyword(s):  
Life Cycle ◽  
Portfolio Choice ◽  
Life Insurance ◽  
Insurance Industry ◽  
Pension Plans ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Pension Insurance ◽  
Insurance Contracts ◽  
State Dependent

AbstractWe analyze optimal consumption in the life cycle model by introducing life and pension insurance contracts. The model contains a credit market with biometric risk, and market risk via risky securities. This idealized framework enables us to clarify important aspects of life insurance and pension contracts. We find optimal pension plans and life insurance contracts where the benefits are state dependent. We compare these solutions both to the ones of standard actuarial theory, and to policies offered in practice. Implications of this include what role the insurance industry may play to improve welfare. The relationship between substitution of consumption and risk aversion is highlighted in the presence of a consumption puzzle. One problem related portfolio choice is discussed the horizon problem. Finally, we present some comments on longevity risk and cohort risk.

LIFE INSURANCE AND PENSION CONTRACTS II: THE LIFE CYCLE MODEL WITH RECURSIVE UTILITY

2015 ◽  
Vol 46 (1) ◽  
pp. 71-102 ◽  
Author(s):  
Knut K. Aase
Keyword(s):  
Life Cycle ◽  
Portfolio Choice ◽  
Life Insurance ◽  
Insurance Industry ◽  
Life Time ◽  
Recursive Utility ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Pension Insurance ◽  
The Relationship

AbstractWe analyze optimal consumption and pension insurance during the life time of a consumer using the life cycle model, when the consumer has recursive utility. The relationship between substitution of consumption and risk aversion is highlighted, and clarified by the introduction of this type of preferences. We illustrate how recursive utility can be used to explain the empirical consumption puzzle for aggregates. This indicates a plausible choice for the parameters of the utility function, relevant for the consumer in the life cycle model. Optimal life insurance is considered, as well as the portfolio choice problem related to optimal exposures in risky securities. A major finding is that it is optimal for the typical insurance buyer to smooth adverse shocks to the financial market, unlike what is implied by the conventional model. This has implications for what type of contracts the life and pension insurance industry should offer.

A LIFE CYCLE MODEL OF LIFE INSURANCE PURCHASES*

1984 ◽  
Vol 36 (2-3) ◽  
pp. 227-238
Author(s):  
Flavio Pressacco
Keyword(s):  
Life Cycle ◽  
Life Insurance ◽  
Life Cycle Model ◽  
Cycle Model

scholarly journals Labor supply flexibility and portfolio choice in a life cycle model

1992 ◽  
Vol 16 (3-4) ◽  
pp. 427-449 ◽  
Author(s):  
Zvi Bodie ◽  
Robert C. Merton ◽  
William F. Samuelson
Keyword(s):  
Life Cycle ◽  
Labor Supply ◽  
Portfolio Choice ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Supply Flexibility

Can Tax Rebates Stimulate Consumption Spending in a Life-Cycle Model?

2014 ◽  
Vol 6 (1) ◽  
pp. 162-189 ◽  
Author(s):  
Jonathan Huntley ◽  
Valentina Michelangeli
Keyword(s):  
Life Cycle ◽  
Portfolio Choice ◽  
Precautionary Savings ◽  
Financial Assets ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Marginal Propensity To Consume ◽  
Tax Returns ◽  
Marginal Propensity ◽  
Earnings Risk

We build a life-cycle model with earnings risk, liquidity constraints, and portfolio choice over tax-deferred and taxable assets to evaluate how household consumption changes in response to shocks to transitory anticipated income, such as the 2001 income tax rebate. Households optimally invest in tax-deferred assets, which are encumbered by withdrawal penalties, and exchange taxable precautionary savings for higher after-tax returns. The model predicts a higher marginal propensity to consume out of a rebate than is predicted by a standard frictionless life-cycle model. Liquidity-constrained households—with few financial assets or portfolios expensive to reallocate—consume a higher fraction of the rebates. (JEL D91, E21, G11, H24)

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