A note on bequest preferences in utility maximisation for modern tontines
Year: 2025
Type: article
Abstract: In this short note, we address two issues in the literature about modern tontines with bequest and utility maximisation: how to verify optimal controls and the decreasing allocation of funds in the tontine. We want to raise awareness about the dual approach to solve optimal control problems when working with power utilities in the actuarial community. Additionally, we highlight that bequest preferences should be time-dependent or otherwise yield unrealistic investment strategies. We base our attempt at modelling bequest preferences on rules like 100% payback upon death at the start that vanishes over time. Our modelling shows that the resulting investment strategy almost linearly adjusts the allocation in the tontine from 0% to 100% over time.
Author: Thomas Bernhardt
Institution: University of Manchester
Language: English
Topic: Probability and Risk Models
Field: Decision Sciences
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,270
OpenAlex ID: W4413579350