Optimal Early Retirement Near the Expiration of a Pension Plan

E. Chevalier ()
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E. Chevalier: Université d’Évry-Val d’Essonne

Finance and Stochastics, 2006, vol. 10, issue 2, No 3, 204-221

Abstract: Abstract In a recent paper, Friedman and Shen (Finance Stoch 6: 273–302, 2002) have considered a pension plan with the option of early retirement. They showed that the financial value V of the retirement benefits is the solution of a variational inequality and have studied the associated free boundary. A description of the free boundary near maturity is given, thanks to integral equation methods. However, V is also the solution of an optimal stopping problem very close to the American option valuation problem. Comparing V to specific options, we derive an expansion of the free boundary near the expiration of the pension plan.

Keywords: Free boundary; Optimal stopping; Variational inequality; 91B24; 60G40; 93E20 (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00780-006-0003-7

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