Life Insurance and Annuity Demand under Hyperbolic Discounting

Risks

Jinhui Zhang¹  Sachi Purcal¹  Siqi Tang² 

[1] Department of Actuarial Studies and Business Analytics, Faculty of Business and Economics, Macquarie University, Sydney, NSW 2109, Australia;The QSuper Group, 70 Eagle Street, Brisbane, QLD 4000, Australia;

关键词: hyperbolic discounting;    dynamic programming;    consumption;    portfolio rules;    life insurance;    life annuity;   

DOI  :  10.3390/risks6020043

来源: DOAJ

【 摘 要 】

In this paper, we analyse and construct a lifetime utility maximisation model with hyperbolic discounting. Within the model, a number of assumptions are made: complete markets, actuarially fair life insurance/annuity is available, and investors have time-dependent preferences. Time dependent preferences are in contrast to the usual case of constant preferences (exponential discounting). We find: (1) investors (realistically) demand more life insurance after retirement (in contrast to the standard model, which showed strong demand for life annuities), and annuities are rarely purchased; (2) optimal consumption paths exhibit a humped shape (which is usually only found in incomplete markets under the assumptions of the standard model).

【 授权许可】

Unknown