Annuity and insurance choice under habit formation

• Main Authors: Boyle, Phelim, Tan, Ken Seng, Wei, Pengyu, Zhuang, Sheng Chao
• Other Authors: Nanyang Business School
• Format: Article
• Language: English
• Published: 2022
• Subjects: Business::Finance; Habit Formation; Life-Cycle Model
• Online Access: https://hdl.handle.net/10356/161653
• Institution: Nanyang Technological University

This paper examines the impact of habit formation on the demand for life-contingent contracts in a life-cycle model. We derive an analytical solution for the optimal consumption, portfolio choice, and life insurance/annuity purchases. We illustrate the mechanism by which the consumption habit assump...