An OLG Model For Optimal Investment And Insurance Decisions

Overlapping generation(OLG)model has been widely used to study individuals’ optimal decision on consumption, investment, insurance, and education expenses. It’s essential to acknowledge that asset allocation means a lot to family finance. We are going to discuss the individuals’demand for insurance with the consideration of generational transfer payments. In the article, we incorporate insurance into the OLG model, then we describe individuals’ optimization problem on consuming and saving, in the end, we solve the optimal proportions of expenditure on investment, survival insurance, life insurance, and education, with the optimal consumption to be remaining parts of expenditure. We observe that the numerical outputs are consistent with the actual data. It is also interesting to find that the human capital investment is independent of both risky asset investment and individuals’ risk aversion coefficient.