Optimal portfolio, consumption and retirement decision under a preference change |
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Authors: | Minsuk Kwak Yong Hyun Shin U Jin Choi |
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Affiliation: | a Department of Mathematical Science, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 305701, Republic of Korea b School of Computational Sciences, Korea Institute for Advanced Study (KIAS), Seoul 130722, Republic of Korea |
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Abstract: | We investigate an optimal portfolio, consumption and retirement decision problem in which an economic agent can determine the discretionary stopping time as a retirement time with constant labor wage and disutility. We allow the preference of the agent to be changed before and after retirement. It is assumed that the agent's coefficient of relative risk aversion becomes higher after retirement. Under a constant relative risk aversion (CRRA) utility function, we obtain the optimal policies in closed-forms using martingale methods and variational inequality methods. We give some numerical results of the optimal policies. We also consider the relation between the level of disutility and the labor wage with the optimal retirement wealth level. |
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Keywords: | Portfolio selection Consumption Retirement Labor wage Disutility Preference change Utility maximization |
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