Optimal retirement planning under partial information

Bäuerle Nicole () and Chen An ()
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Bäuerle Nicole: Institute of Stochastics, Karlsruhe Institute of Technology, 76128Karlsruhe, Germany
Chen An: Institute of Insurance Science, University of Ulm, Helmholtzstr. 20, 89069Ulm, Germany

Statistics & Risk Modeling, 2019, vol. 36, issue 1-4, 37-55

Abstract: The present paper analyzes an optimal consumption and investment problem of a retiree with a constant relative risk aversion (CRRA) who faces parameter uncertainty about the financial market. We solve the optimization problem under partial information by making the market observationally complete and consequently applying the martingale method to obtain closed-form solutions to the optimal consumption and investment strategies. Further, we provide some comparative statics and numerical analyses to deeply understand the consumption and investment behavior under partial information. Bearing partial information has little impact on the optimal consumption level, but it makes retirees with an RRA smaller than one invest more riskily, while it makes retirees with an RRA larger than one invest more conservatively.

Keywords: Optimal retirement planning; partial information; static martingale approach (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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DOI: 10.1515/strm-2018-0027

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