Faculty of Economics and Business Administration Publications Database

Optimal Consumption and Insurance: A Continuous-Time Markov Chain Approach

Authors:
Steffensen, Mogens
Source:
Volume: 38
Number: 1
Pages: 231 - 257
Month: May
ISSN-Print: 0515-0361
Link External Source: Online Version
Year: 2008
Keywords: Personal Finance; Multi-state Model; Stochastic Control; Financial Decision Making; Mortability-Disability-Unemployment Risk
Abstract: Personal financial decision making plays an important role in modern finance. Decision problems about consumption and insurance are in this article modelled in a continuous-time multi-state Markovian framework. The optimal solution is derived and studied. The model, the problem, and its solution are exemplified by two special cases: In one model the individual takes optimal positions against the risk of dying; in another model the individual takes optimal positions against the risk of losing income as a consequence of disability or unemployment.
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