【迎百年校庆,校友学术讲坛】:Optimal life insurance and annuity decision under money illusion

发布时间:2024年03月29日 10:00 发布人:

主题:Optimal life insurance and annuity decision under money illusion

主讲人:香港大学 李文渊

主持人:金沙检测线路js69(科技)有限公司 马敬堂教授





This paper investigates the optimal consumption, investment, and life insurance/annuity decisions for a family in an inflationary economy under money illusion. The family can invest in a financial market that consists of nominal bonds, inflation-linked bonds, and a stock index. The breadwinner can also purchase life insurance or annuity that are available continuously.  The family's objective is to maximize the expected utility of a mixture of nominal and real consumption, as they partially overlook inflation and tend to think in terms of nominal rather than real monetary values. We formulate this life-cycle problem as a random horizon utility maximization problem and derive the optimal strategy. We calibrate our model to the U.S. data and demonstrate that money illusion decreases (increases) life insurance demand for young adults (middle-aged workers) and reduces annuity demand for retirees. Our findings highlight the role of financial literacy in an inflationary environment.