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Asset demands and consumption with longevity risk

Author

Listed:
  • Bong-Gyu Jang

    (POSTECH)

  • Hyeng Keun Koo

    (Ajou University)

  • Yuna Rhee

    (POSTECH)

Abstract

We study asset demands and consumption of an individual with longevity risk. We investigate a complete market with vehicles hedging against longevity risk and compare this case with a no insurance case and a partial insurance case to illustrate comprehensive economic implications. Particularly, we show that the stock-to-savings ratio in the partial insurance case is smaller than that in the other two cases, and that the time-old proposition, such that an increased mortality rate is equivalent to an increased subjective discount rate, does not necessarily follow without the assumption of a time-separable utility function.

Suggested Citation

  • Bong-Gyu Jang & Hyeng Keun Koo & Yuna Rhee, 2016. "Asset demands and consumption with longevity risk," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 587-633, August.
    • Handle: RePEc:spr:joecth:v:62:y:2016:i:3:d:10.1007_s00199-015-0922-7
    DOI: 10.1007/s00199-015-0922-7
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    2. Bae, Se Yung & Jeon, Junkee & Koo, Hyeng Keun & Park, Kyunghyun, 2020. "Social insurance for the elderly," Economic Modelling, Elsevier, vol. 91(C), pages 274-299.

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    More about this item

    Keywords

    Longevity risk; Asset demand; Consumption; Life insurance; Annuity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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