Asset Demands and Consumption with Longevity Risk

Abstract

We study asset demands and consumption of an individual with longevity risk. We investigate a complete market with vehicles hedging against longevity risk and compare this case with a no insurance case and a partial insurance case to illustrate comprehensive economic implications. Particularly, we show that the stock-to-savings ratio in the partial insurance case is smaller than that in the other two cases, and that the time-old proposition, such that an increased mortality rate is equivalent to an increased subjective discount rate, does not necessarily follow without the assumption of a time-separable utility function.