IDEAS home Printed from https://ideas.repec.org/a/taf/uaajxx/v22y2018i2p182-197.html
   My bibliography  Save this article

Target-Bequest Investment and Insurance Fund

Author

Listed:
  • Virginia R. Young

Abstract

We propose a new type of investment fund, a Target-Bequest Fund (TBF), for which the manager of the fund invests to maximize the probability of reaching a bequest goal, specified by the investor. We assume the fund pays dividends at a rate proportional to the value of the fund, with the proportion also specified by the investor. In addition to considering this basic fund, we propose two extensions. The first extension is to impose a no-borrowing constraint. Indeed, unless the investment fund is a hedge fund, it will likely not allow the manager to invest more in the risky asset than is available in the fund, so this constraint is a realistic one. The second extension is to allow the fund manager to buy life insurance to help reach the bequest goal. We consider both extensions in the special case for which the proportional dividend rate is less than or equal to the riskless rate of return. Our focus is to obtain explicit solutions in a simplified market and insurance setting to give actuaries implementing this fund design some rules-of-thumb for investing in a financial market and buying life insurance in more realistic settings. We fully expect these rules-of-thumb to be generally valid in those more realistic settings.

Suggested Citation

  • Virginia R. Young, 2018. "Target-Bequest Investment and Insurance Fund," North American Actuarial Journal, Taylor & Francis Journals, vol. 22(2), pages 182-197, April.
    • Handle: RePEc:taf:uaajxx:v:22:y:2018:i:2:p:182-197
    DOI: 10.1080/10920277.2017.1381030
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10920277.2017.1381030
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10920277.2017.1381030?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:uaajxx:v:22:y:2018:i:2:p:182-197. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/uaaj .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.