Title: Allocation choice between pension fund and long term care: The investor's perspective in the Italian market
Authors: Nancy Zambon - University of Padova (Italy) [presenting]
Massimiliano Caporin - University of Padova (Italy)
Abstract: Focusing on the Italian market, we investigate the optimal allocation choice of an investor who can choose to invest exclusively in pensions funds against the decision of reducing the contribution to the pension fund to underwrite a Long Term Care insurance. We first determine the optimal allocation in the pension fund accounting for uncertainty in the model parameters. Indeed, although the investment horizon is relevant in allocation choices, considering uncertainty in the parameters the horizon effect is less present. We then use this information to determine the cash flows associated with different possible life events and investment strategies. This in turn is used as a measure of Long Term Care utility in terms of expected economic wealth differential between the cases with and without insurance. The results suggest that the rational choice for an Italian investor is not to subscribe a Long Term Care coverage. Indeed, when investors optimally allocate their wealth in the pension fund, accounting also for uncertainty, the expected advantage from the Long Term Care is negative.