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Comonotonic approximations for the probability of lifetime ruin*

Published online by Cambridge University Press:  18 May 2011

KOEN VAN WEERT ,
JAN DHAENE  and
MARC GOOVAERTS
KOEN VAN WEERT
Affiliation:
Department of Accountancy, Finance and Insurance, K.U.Leuven, Naamsestraat 69, B-3000 Leuven, Belgium (e-mail: koen.vanweert@econ.kuleuven.be)
JAN DHAENE
Affiliation:
Department of Accountancy, Finance and Insurance, K.U.Leuven, Naamsestraat 69, B-3000 Leuven, Belgium Department of Quantitative Economics, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands
MARC GOOVAERTS
Affiliation:
Department of Accountancy, Finance and Insurance, K.U.Leuven, Naamsestraat 69, B-3000 Leuven, Belgium Department of Quantitative Economics, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands
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Abstract

This paper addresses the issue of lifetime ruin, which is defined as running out of money before death. Taking into account the random nature of the remaining lifetime, we discuss how a retiree should invest in order to avoid lifetime ruin. We also discuss the conditional time of lifetime ruin and the notion of bequest or wealth at death.

Using analytical approximations based on comonotonicity, we provide a new approach which is easy to understand and leads to very accurate results without computationally complex calculations. Our analytical approach avoids simulation, which allows to solve very general optimal portfolio selection problems.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 11 , Issue 2 , April 2012 , pp. 285 - 309
Copyright
Copyright © Cambridge University Press 2011

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