Speaker: Stanley Pliska
Title: Optimal Life Insurance Purchase, Consumption, and Investment: Computational Methods and Numerical Examples
Affiliation: University of Illinois at Chicago
Date: Friday, October 13, 2006.
Place and Time: Room 101 - Love Building, 3:35-4:30 pm.
Refreshments: Room 204 - Love Building, 3:00 pm.

Abstract. A continuous time model is developed for determining a wage earner's optimal strategies for dividing lifetime income between the purchase of life insurance, consumption, and investment. For the purposes of investment there are both riskless and risky assets. The wage earner, whose lifetime is uncertain, seeks to maximize the expectation of (1) the utility of consumption while still alive and working, (2) the utility of the bequest (which includes the insurance payout) upon premature death, and (3) the utility of the size of the estate upon retirement (if he or she lives that long). This talk will focus on how to numerically solve the relevant dynamic programming (Hamilton-Jacobi-Bellman) equation. Numerical examples will be presented in an effort to understand how the model parameters affect the optimal decisions.