Optimal stopping time, consumption, labour, and portfolio decision for a pension scheme

Francesco Menoncin () and Sergio Vergalli
Additional contact information
Francesco Menoncin: Università degli Studi di Brescia

Journal of Economics, 2021, vol. 132, issue 1, No 3, 67-98

Abstract: Abstract In this work we solve in a closed form the problem of an agent who wants to optimise the inter-temporal recursive utility of both his consumption and leisure by choosing: (1) the optimal inter-temporal consumption, (2) the optimal inter-temporal labour supply, (3) the optimal share of wealth to invest in a risky asset, and (4) the optimal retirement age. The wage of the agent is assumed to be stochastic and correlated with the risky asset on the financial market. The problem is split into two sub-problems: the optimal consumption, labour, and portfolio problem is solved first, and then the optimal stopping time is approached. We compute the solution through both the so-called martingale approach and the solution of the Hamilton–Jacobi–Bellman partial differential equation. In the numerical simulations we compare two cases, with and without the opportunity, for the agent, to work after retirement, at a lower wage rate.

Keywords: Optimal Stopping Time; Retirement Choice; Labour Supply; Asset Allocation; Mortality Risk (search for similar items in EconPapers)
JEL-codes: C61 D15 G11 J22 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00712-020-00710-y Abstract (text/html)

Related works:
Working Paper: Optimal Stopping Time, Consumption, Labour, and Portfolio Decision for a Pension Scheme (2019)
Working Paper: Optimal Stopping Time, Consumption, Labour, and Portfolio Decision for a Pension Scheme (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:132:y:2021:i:1:d:10.1007_s00712-020-00710-y

DOI: 10.1007/s00712-020-00710-y

Access Statistics for this article

Journal of Economics is currently edited by Giacomo Corneo

More articles in Journal of Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().