Accession Number : AD0657034

Title :   OPTIMAL INVESTMENT AND CONSUMPTION STRATEGIES UNDER RISK, AND UNCERTAIN LIFETIME, AND INSURANCE,

Corporate Author : CALIFORNIA UNIV LOS ANGELES WESTERN MANAGEMENT SCIENCE INST

Personal Author(s) : Hakansson,Nils H.

Report Date : JUN 1967

Pagination or Media Count : 46

Abstract : In a previous paper, the author presented a normative model of the individual's economic decision problem under risk. This model is now extended to include the case in which the individual has an uncertain life-time, a bequest motive, and the opportunity to enter into contracts of insurance. Optimal investment and consumption strategies are derived, where possible, for the class of utility functions whose proportional risk aversion indices are constants, and their properties are noted. In consequence of one of these properties, it is shown that the model gives rise to an induced theory of the firm under risk, which may be viewed as an extension of the theory developed for the case in which the horizon is certain. In addition, it is found that when the premium charged is 'fair,' any given individual may be able to make himself better off both by the purchase of insurance on his own life and the sale of insurance on the lives of others. (Author)

Descriptors :   (*DECISION THEORY, PROBABILITY), (*DYNAMIC PROGRAMMING, UNCERTAINTY), RANDOM VARIABLES, OPERATIONS RESEARCH, MANAGEMENT PLANNING AND CONTROL, MATHEMATICAL MODELS, OPTIMIZATION, ECONOMICS

Subject Categories : Operations Research

Distribution Statement : APPROVED FOR PUBLIC RELEASE