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Document Details :

Title: Life Annuitization
Subtitle: Why and How Much?
Author(s): HAINAUT, Donatien , DEVOLDER, Pierre
Journal: ASTIN Bulletin
Volume: 36    Issue: 2   Date: 2006   
Pages: 629-654
DOI: 10.2143/AST.36.2.2017936

Abstract :
This paper addresses some of the problems a majority of retired individuals face:
Why and in what proportion should they invest in a life annuity to maximize
the utility of their future consumption or a bequest? The market considered
in this work is made up of three assets: a life annuity, a risky asset and a cash
account. As this problem doesn’t accept any suitable explicit solution, it is
numerically solved by the Markov Chain approximation developed by Kushner
and Dupuis. Without a bequest motive, we observe that the optimal planning
of consumption is divided into two periods and that optimal asset allocation
should include the risky asset. Next, the influence of a bequest on consumption
and investment pattern is developed. We demonstrate that even with a bequest
motive, pensioners should allocate a part of their wealth to the purchase of life
annuities.

18.204.2.231.