Growing old gracefully

optimal financial behaviour over a stochastic life cycle

Research output: Book/ReportBook

Abstract

The aim of this work is to investigate an individual's optimal life cycle behaviour, with particular reference to financial decisions made over time. How should one consume, save, invest, insure and annuitise over one's life? In chapter 3 we implement a model of lifetime personal financial planning. By simulating this theoretical model of lifetime personal financial planning we are able to quantitatively assess popular financial advice. We examine age-phasing as well as a traditional rule of thumb for life insurance purchase. Our modelling also sheds light on the reasons for the thinness of voluntary life annuity markets worldwide. Chapter 4 extends the model, examining the implications for individual optimal behaviour if either borrowing is constrained, no annuity market exists, or mean reversion and persistence are present in equity returns. Chapter 5 considers the important question of determining optimal consumption, investment and life insurance/annuity demand over the life cycle in an environment where labour income is no longer deterministic but stochastic.
Original languageEnglish
Place of PublicationSaarbrucken, Germany
PublisherVDM Verlag Dr. Mueller
Number of pages188
ISBN (Print)9873639115550
Publication statusPublished - 2009
Externally publishedYes

Keywords

  • Finance, Personal--Planning--Decision making--Econometric models
  • Investment analysis--Econometric models
  • Portfolio management--Econometric models

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