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Optimal consumption–portfolio choices and retirement planning

✍ Scribed by Zvi Bodie; Jérôme B. Detemple; Susanne Otruba; Stephan Walter

Publisher
Elsevier Science
Year
2004
Tongue
English
Weight
414 KB
Volume
28
Category
Article
ISSN
0165-1889

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✦ Synopsis

We examine consumption and investment decisions in a life-cycle model with habit formation, stochastic opportunity set, stochastic wages and labor supply exibility. Retirement is taken into account by specifying an age at which labor earnings stop, but consumption spending continues. Explicit solutions are obtained for optimal consumption, labor supply and the ÿnancing portfolio. We examine the structure and determinants of the optimal portfolio. We also study the e ects of the retirement date and of habits on optimal decisions. Finally, we conduct a preliminary analysis to assess the e ects of a liquidity constraint on optimal consumption-leisure choices.

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