Download or read book Optimal consumption portfolio choices and retirement planning written by Zvi Bodie and published by . This book was released on 2004 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Optimal Consumption and Portfolio Choice written by Jialun Li and published by . This book was released on 2012 with total page 114 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Portfolio Selection and Financial Planning written by Sachi T. Purcal and published by . This book was released on 1996 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Strategic Asset Allocation written by John Y. Campbell and published by OUP Oxford. This book was released on 2002-01-03 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.

Download or read book Optimal Retirement Planning written by Saisai Zhang and published by . This book was released on 2018 with total page 254 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global trend of shifting from defined benefit (DB) to defined contribution (DC) workplace pension plans is putting growing pressure on individuals to take more ownership in retirement planning and financial decision-making. The essence of the DB is the life-long income guarantee, which requires limited financial planning decisions to be made, either in the accumulation or decumulation phase. The DC on the other hand, is significantly more complex. The lump sum payment at retirement burdens individuals with the task of income generation, in the presence of challenges stemming from an uncertain future lifetime, economic conditions, and evolving consumption needs. The average retiree has limited competency to navigate these challenges, due to low financial literacy, lack of willpower, or deteriorating cognitive abilities with older ages. The high stake of these challenges calls for a normative solution to be proposed - a solution that considers the intricacy of risks, preferences, and normative objective formulations. The objective of this thesis is to explore such a solution. This thesis comprises three inter-related research directions: long-term economic scenario generators (ESGs), recursive preferences in life-cycle portfolio selection, and retirement objective formulation. A brief description of the subsequent chapters will now follow. The first chapter conducts a review of Wilkie's ESG, with analysis restricted to series pertinent to retirement planning. Our main findings indicate that there exist challenges in modelling long-term economic series due to the presence of multiple structural shifts in the historical time series. Consequently, certain assumptions of stationarity are violated, and parameters are sensitive to the calibration period. A backtest based on 30-year out-of-sample data indicated that over that period the model had tended to overestimate inflation, underestimate total return on stocks, and performed relatively well for long-term interest rates. Additionally, Wilkie's ESG can be under-representative of the risk in long-term stock investment, particularly in the tails. The second chapter provides an introductory discussion of Epstein-Zin preferences, which are adopted in the succeeding chapter as a normative preference model. The purpose is to first investigate the implied optimal behaviour and its plausibility. We pay particular attention to whether the output leads to plausible behaviour given the context of retirement planning. Specifically, analytical solutions for a simple consumption problem are derived, isolating the impact of relative risk aversion (RRA), elasticity of intertemporal substitution (EIS), time discounting, and risks stemming from mortality, investment, and inflation. We investigate three Epstein-Zin models employed in the literature, which differ in their treatment of mortality risk, and find that some lead to normatively implausible solutions. Importantly, we find that the EIS is not always monotone in its effect on consumption volatility over time, meaning that its interpretation can be ambiguous when considering an uncertain future lifetime. This has been misinterpreted in the literature to date. We also show that one particular Epstein-Zin specification is not necessarily a generalization of expected utility maximization under constant relative risk aversion, as many works wrongly claim. The third chapter investigates the normative validity of the optimal consumption and investment strategies of a discrete-time Epstein-Zin utility maximizing DC retiree who wishes to benefit from stock investment, longevity insurance, and inflation protection. A comparison of three Epstein-Zin specifications is conducted. We use a combination of qualitative and quantitative criteria to evaluate the adequacy of the optimal consumption profile, with special attention paid to the downside risk at extreme old ages. We find that it remains optimal to fully annuitize, but agents with high relative risk aversion hold precautionary savings, the level of which is impacted by the EIS and the preference specification. As discussed in the preceding chapter, the interpretation of EIS on consumption volatility is found to be ambiguous. Investigations of the optimal consumption profile reveal that agents are exposed to relatively high levels of downside risk in the long run. This is partially attributed to a time discounting factor less than 1, which implicitly (and contradictorily) assumes myopia in normative decision-making. An investigation of zero time discounting is conducted, with downside risk found be to significantly reduced in the long run. The fourth chapter focuses on retirement objective formulation. This chapter is motivated by the unsatisfactory normative solutions found in the preceding chapter under mathematically convenient objective functions. In order to develop more actionable prescriptive solutions, we seek to holistically explore actual retirement decision-making. To this end, we conduct a survey study of 1,000 Canadian (pre-)retirees age 50 to 80, on topics of retirement consumption, wealth, income, risk perception, decision making, and planning objectives. Additionally, we investigate the descriptive validity of the expected lifetime discounted utility maximization framework in predicting optimal planning behaviours. Overall, there is overwhelming evidence of heterogeneity in wealth, income, concerns, and objectives. We find a prevalence of low retirement assets, a severe underestimation of survival probabilities to an extreme old age of 95, and a strong aversion toward life annuities. Pre-retirees appear to have reasonable expectations regarding income and assets in retirement, with the median retiree relying heavily on public pension sources. (Pre-)retirees are primarily concerned with liquidity needs, consumption smoothing, inflation, and longevity in retirement, and are least concerned with bequests. We elicited risk and time preferences, and found an average RRA parameter between 1.74 to 2.48 for pre-retirees and 2.48 to 3.74 for retirees, and a median subjective time discount factor of 0.997. A study of decision-making under risky scenarios reveals dramatic differences between the actual and implied choices under the expected utility maximization framework. Particularly, in the presence of inflation risk, agents lack the understanding of the long-term cumulative impact of inflation on the cost of living. In the presence of investment risk, the upside gain drives decision-making, and the presence of minimum income protection effectively provided by public pension income induces more risk-taking behaviour. The last chapter concludes the thesis, and proposes general directions for future work in retirement planning research.

Download or read book Planning for Individual Retirement Optimal Consumption Investment and Retirement Timing Under Different Preferences and Habit Persistence written by Felix Hentschel and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Saving and Investing for Early Retirement written by Emmanuel Farhi and published by . This book was released on 2004 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Retirement and Portfolio Selection with Consumption Ratcheting written by Junkee Jeon and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to study the optimal retirement and consumption/investment decisions of an infinitely lived agent who does not tolerate any decline in his/her consumption throughout his/her lifetime. The agent receives labor income but suffers disutility from working until retirement. The agent's optimization problem combines features of both singular control and optimal stopping. We use the martingale method and study the dual problem, which can be decoupled into a singular control problem and an optimal stopping problem. We provide a closed-form solution of the optimal strategies for the von-Neumann-Morgenstern utility function. We show that the coefficient of relative risk aversion implied by the optimal portfolio (i.e., the implied coefficient of relative risk aversion, ICRRA) is a constant value smaller than 1. Moreover, we show that the ICRRA is independent of the agent's felicity utility function and depends only on the subjective discount rate and market parameters.

Download or read book Planning for Individual Retirement Optimal Consumption Investment and Retirement Timing Under Different Preferences and Habit Persistence written by and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Advances in Retirement Investing written by Lionel Martellini and published by Cambridge University Press. This book was released on 2020-09-10 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: To supplement replacement income provided by Social Security and employersponsored pension plans, individuals need to rely on their own saving and investment choices during accumulation. Once retired, they must also decide at which rate to spend their savings, with the usual dilemma between present and future consumption in mind. This Element explains how financial engineering and risk management techniques can help them in these complex decisions. First, it introduces 'retirement bonds', or retirement bond replicating portfolios, that provide stable and predictable replacement income during the decumulation period. Second, it describes investment strategies that combine the retirement bond with an efficient performanceseeking portfolio so as to reduce uncertainty over the future amount of income while offering upside potential. Finally, strategies using risk insurance techniques are proposed to secure minimum levels of replacement income while giving the possibility of reaching higher levels of income.

Download or read book Financial Planning and Risk Management for Retirement Optimal Investment consumption Choices Under Multiple Risk Exposures written by Zhisheng Li and published by . This book was released on 2006 with total page 290 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Portfolio Choice with Life Annuities Under Probability Distortion written by and published by . This book was released on 2015 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Consumption and Portfolio Choice for Retirees written by Lulu Zeng and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: I solve the optimal consumption and portfolio choice problem of a retiree who is endowed with both liquid assets and pre-annuitized wealth in Social Security. The retiree faces an investment menu including an equity index, a risk-free bond, a life insurance and a variable annuity. I find that the added benefit of annuitization timing can be valuable for variable annuity. The utility loss due to the irreversibility of pre-annuitized wealth can be big, and a transition from the current pay-as-you-go Social Security system to a personal investmentbased system benefits retirees with high fraction of pre-annuitized wealth the most. Purchasing life insurance is effective in reducing the adverse effect of over-annuitization only for impatient retirees with low Elasticity of Intergenerational Substitution. Interestingly, the utility loss due to the irreversibility of a future life annuity purchase is small for the retiree.

Download or read book Money in Motion written by Wolfram J. Horneff and published by . This book was released on 2007 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Retirees confront the difficult problem of how to manage their money in retirement so as to not outlive their funds while continuing to invest in capital markets. We posit a dynamic utility maximizer who makes both asset location and allocation decisions when managing her retirement financial wealth and annuities, and we prove that she can benefit from both the equity premium and longevity insurance in her retirement portfolio. Even without bequests, she will not fully annuitize; rather, her optimal stock allocation amounts initially to more than half of her financial wealth and declines with age. Welfare gains from this strategy can amount to 40 percent of financial wealth (depending on risk parameters and other resources). In practice, it turns out that many retirees will do almost as well by purchasing a variable annuity invested 60/40 in stocks/bonds.

Download or read book Three Essays on Consumption Portfolio Choice and Retirement Accounts written by Pu Li and published by . This book was released on 2014 with total page 113 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Lifetime Consumption and Investment written by Hong Liu and published by . This book was released on 2010 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-towage ratio threshold for retirement and human capital correlates negatively with the stock market even when wages have zero or slightly positive market risk exposure. Consequently, investors optimally invest more in the stock market than without retirement flexibility. Both consumption and portfolio choice jump at the endogenous retirement date. The inability to borrow limits hedging and reduces the value of labor income, the wealth-to-wage ratio threshold for retirement, and the stock investment.

Download or read book Investors and Markets written by William F. Sharpe and published by Princeton University Press. This book was released on 2011-01-01 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Investors and Markets, Nobel Prize-winning financial economist William Sharpe shows that investment professionals cannot make good portfolio choices unless they understand the determinants of asset prices. But until now asset-price analysis has largely been inaccessible to everyone except PhDs in financial economics. In this book, Sharpe changes that by setting out his state-of-the-art approach to asset pricing in a nonmathematical form that will be comprehensible to a broad range of investment professionals, including investment advisors, money managers, and financial analysts. Bridging the gap between the best financial theory and investment practice, Investors and Markets will help investment professionals make better portfolio choices by being smarter about asset prices. Based on Sharpe's Princeton Lectures in Finance, Investors and Markets presents a method of analyzing asset prices that accounts for the real behavior of investors. Sharpe makes this technique accessible through a new, one-of-a-kind computer program (available for free on his Web site, at http://www.stanford.edu/~wfsharpe/apsim/index.html) that enables users to create virtual markets, setting the starting conditions and then allowing trading until equilibrium is reached and trading stops. Program users can then analyze the final portfolios and asset prices, see expected returns, and measure risk. In addition to popularizing the most sophisticated form of asset-price analysis, Investors and Markets summarizes much of Sharpe's most important previous work and reflects a lifetime of thinking about investing by one of the leading minds in financial economics. Any serious investment professional will benefit from Sharpe's unique insights.