Life Insurance and Subsistence Consumption with an Exponential Utility

Abstract

In this paper, we derive an explicit solution to the utility maximization problem of an individual with mortality risk and subsistence consumption constraint. We adopt an exponential utility for the individual’s consumption and the martingale and duality method is employed. From the explicit solution, we exhibit how the mortality intensity and subsistence consumption constraint affect, separately and together, portfolio, consumption and life insurance purchase.

Keywords

• life insurance
• subsistence consumption
• portfolio selection
• exponential utility
• martingale method