Physical Sciences and Mathematics Commons^™

A Matched Payout Model For Investment, Consumption, And Insurance With A Risky Annuity Income, Joseph Allen Adams

Theses and Dissertations

We introduce a new insurance instrument allowing retirees to hedge against risk of mortality and risk of default. At retirement, the retiree is allowed to purchase an annuity that provides a defaultable income stream over his lifetime. The time of mortality and time of default are both uncertain, but are accompanied by determined hazard rates. The retiree will make consumption and investment choices throughout his lifetime, which have certain restrictions: the retiree can never enter a bankruptcy state (negative total wealth), and the investment choices are made in a risk-free financial instrument (such as a treasury bill or bond) and …