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OPTIMAL CONSUMPTION/INVESTMENT AND LIFE INSURANCE WITH REGIME-SWITCHING FINANCIAL MARKET PARAMETERS
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 Title & Authors
OPTIMAL CONSUMPTION/INVESTMENT AND LIFE INSURANCE WITH REGIME-SWITCHING FINANCIAL MARKET PARAMETERS
LEE, SANG IL; SHIM, GYOOCHEOL;
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 Abstract
We study optimal consumption/investment and life insurance purchase rules for a wage earner with mortality risk under regime-switching financial market conditions, in a continuous time-horizon. We apply the Markov chain approximation method and suggest an efficient algorithm using parallel computing to solve the simultaneous Hamilton-Jaccobi-Bellman equations arising from the optimization problem. We provide numerical results under the utility functions of the constant relative risk aversion type, with which we illustrate the effects of regime switching on the optimal policies by comparing them with those in the absence of regime switching.
 Keywords
Optimal consumption/investment;life insurance;regime switching;Markov chain approximation;parallel computing;
 Language
English
 Cited by
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