Optimal Smooth Consumption and Annuity Design

Kenneth Bruhn; Mogens Steffensen

doi:10.1016/j.jbankfin.2013.03.015

Optimal Smooth Consumption and Annuity Design

Kenneth Bruhn, Mogens Steffensen

Department of Mathematical Sciences

8 Citations (Scopus)

Abstract

We propose an optimization criterion that yields extraordinary consumption smoothing compared to the well known results of the life-cycle model. Under this criterion we solve the related consumption and investment optimization problem faced by individuals with preferences for intertemporal stability in consumption. We find that the consumption and investment patterns demanded under the optimization criterion is in general offered as annuity benefits from products in the class of ‘Formula Based Smoothed Investment-Linked Annuities’.

Original language	English
Journal	Journal of Banking & Finance
Volume	37
Issue number	8
Pages (from-to)	2693-2701
ISSN	0378-4266
DOIs	https://doi.org/10.1016/j.jbankfin.2013.03.015
Publication status	Published - Aug 2013

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10.1016/j.jbankfin.2013.03.015

Cite this

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title = "Optimal Smooth Consumption and Annuity Design",

abstract = "We propose an optimization criterion that yields extraordinary consumption smoothing compared to the well known results of the life-cycle model. Under this criterion we solve the related consumption and investment optimization problem faced by individuals with preferences for intertemporal stability in consumption. We find that the consumption and investment patterns demanded under the optimization criterion is in general offered as annuity benefits from products in the class of {\textquoteleft}Formula Based Smoothed Investment-Linked Annuities{\textquoteright}.",

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AB - We propose an optimization criterion that yields extraordinary consumption smoothing compared to the well known results of the life-cycle model. Under this criterion we solve the related consumption and investment optimization problem faced by individuals with preferences for intertemporal stability in consumption. We find that the consumption and investment patterns demanded under the optimization criterion is in general offered as annuity benefits from products in the class of ‘Formula Based Smoothed Investment-Linked Annuities’.

U2 - 10.1016/j.jbankfin.2013.03.015

DO - 10.1016/j.jbankfin.2013.03.015

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