Abstract
We solve a portfolio selection problem of an investor with a deterministic savings plan who aims to have a target wealth value at retirement. The investor is an expected power utility-maximizer. The target wealth value is the maximum wealth that the investor can have at retirement.
By constraining the investor to have no more than the target wealth at retirement, we find that the lower quantiles of the terminal wealth distribution increase, so the risk of poor financial outcomes is reduced. The drawback of the optimal strategy is that the possibility of gains above the target wealth are eliminated.
By constraining the investor to have no more than the target wealth at retirement, we find that the lower quantiles of the terminal wealth distribution increase, so the risk of poor financial outcomes is reduced. The drawback of the optimal strategy is that the possibility of gains above the target wealth are eliminated.
| Original language | English |
|---|---|
| Pages (from-to) | 259-567 |
| Number of pages | 9 |
| Journal | Insurance: Mathematics and Economics |
| Volume | 64 |
| Early online date | 17 Jun 2015 |
| DOIs | |
| Publication status | Published - Sept 2015 |
Keywords
- Retirement planning
- Retirement wealth distribution
- Savings plan
- Portfolio optimization
- Stochastic control
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Catherine Donnelly
- School of Mathematical & Computer Sciences - Professor
- School of Mathematical & Computer Sciences, Actuarial Mathematics & Statistics - Professor
Person: Academic (Research & Teaching)