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An OLG Model for Optimal Investment and Insurance Decisions
Author(s) -
Li Bingqing,
Liao Pu,
Xu Jingfeng
Publication year - 2015
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2013.12017.x
Subject(s) - overlapping generations model , investment (military) , economics , consumption (sociology) , life insurance , microeconomics , asset (computer security) , actuarial science , human capital , payment , finance , computer science , social science , computer security , sociology , politics , political science , law , economic growth
This article uses overlapping generation (OLG) model to study individuals' optimal decision on consumption, investment, insurance, and education expenses. To the best of our knowledge, we are the first to discuss the individuals' demand for insurance with the consideration of intergenerational transfer payments. In the article, we incorporate insurance into the OLG model to describe individuals' optimization problem on consuming and saving, and we solve the optimal proportions of expenditure on investment, survival insurance, life insurance, and education, with the optimal consumption to be the remaining parts of expenditure. We observe that the numerical outputs are consistent with the actual data. It is also interesting to find that the human capital investment is independent of both risky asset investment and individuals' risk aversion coefficient.