Annuity and insurance choice under habit formation
This paper examines the impact of habit formation on the demand for life-contingent contracts in a life-cycle model. We derive an analytical solution for the optimal consumption, portfolio choice, and life insurance/annuity purchases. We illustrate the mechanism by which the consumption habit assump...
| Main Authors: | , , , |
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| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2022
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| Subjects: | |
| Online Access: | https://hdl.handle.net/10356/161653 |
| _version_ | 1811679177490825216 |
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| author | Boyle, Phelim Tan, Ken Seng Wei, Pengyu Zhuang, Sheng Chao |
| author2 | Nanyang Business School |
| author_facet | Nanyang Business School Boyle, Phelim Tan, Ken Seng Wei, Pengyu Zhuang, Sheng Chao |
| author_sort | Boyle, Phelim |
| collection | NTU |
| description | This paper examines the impact of habit formation on the demand for life-contingent contracts in a life-cycle model. We derive an analytical solution for the optimal consumption, portfolio choice, and life insurance/annuity purchases. We illustrate the mechanism by which the consumption habit assumption can alter the bequest motive and therefore drive the demand for life-contingent products. Based on our assumed insurance/annuity markets, we show that habit formation alone leads to low demand on either life insurance or annuity but not both. However, habit formation together with social security results in low demand in both life insurance and annuity. |
| first_indexed | 2024-10-01T03:05:01Z |
| format | Journal Article |
| id | ntu-10356/161653 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T03:05:01Z |
| publishDate | 2022 |
| record_format | dspace |
| spelling | ntu-10356/1616532023-05-19T07:31:18Z Annuity and insurance choice under habit formation Boyle, Phelim Tan, Ken Seng Wei, Pengyu Zhuang, Sheng Chao Nanyang Business School Insurance Risk & Finance Research Centre Business::Finance Habit Formation Life-Cycle Model This paper examines the impact of habit formation on the demand for life-contingent contracts in a life-cycle model. We derive an analytical solution for the optimal consumption, portfolio choice, and life insurance/annuity purchases. We illustrate the mechanism by which the consumption habit assumption can alter the bequest motive and therefore drive the demand for life-contingent products. Based on our assumed insurance/annuity markets, we show that habit formation alone leads to low demand on either life insurance or annuity but not both. However, habit formation together with social security results in low demand in both life insurance and annuity. Submitted/Accepted version 2022-09-13T06:47:04Z 2022-09-13T06:47:04Z 2022 Journal Article Boyle, P., Tan, K. S., Wei, P. & Zhuang, S. C. (2022). Annuity and insurance choice under habit formation. Insurance: Mathematics and Economics, 105, 211-237. https://dx.doi.org/10.1016/j.insmatheco.2022.04.003 0167-6687 https://hdl.handle.net/10356/161653 10.1016/j.insmatheco.2022.04.003 2-s2.0-85129443320 105 211 237 en Insurance: Mathematics and Economics © 2022 Elsevier B.V. All rights reserved. This paper was published in Insurance: Mathematics and Economics and is made available with permission of Elsevier B.V. application/pdf |
| spellingShingle | Business::Finance Habit Formation Life-Cycle Model Boyle, Phelim Tan, Ken Seng Wei, Pengyu Zhuang, Sheng Chao Annuity and insurance choice under habit formation |
| title | Annuity and insurance choice under habit formation |
| title_full | Annuity and insurance choice under habit formation |
| title_fullStr | Annuity and insurance choice under habit formation |
| title_full_unstemmed | Annuity and insurance choice under habit formation |
| title_short | Annuity and insurance choice under habit formation |
| title_sort | annuity and insurance choice under habit formation |
| topic | Business::Finance Habit Formation Life-Cycle Model |
| url | https://hdl.handle.net/10356/161653 |
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