Optimal portfolio, consumption and retirement decision under a preference change (Q1022955): Difference between revisions

This paper investigates an optimal portfolio, consumption and retirement decision problem for an economic agent who receives a constant wage and has disutility after retirement. The preferences of the agent can change before and after retirement. Optimal policies are determined for the case that the agent has a constant relative risk aversion utility function and the agent's coefficient of relative risk aversion becomes higher after retirement. The relation between the level of disutility and the labor wage with the optimal retirement wealth level are investigated. The optimal policies are determined in closed-forms using martingale methods and variational inequality methods. Numerical examples of the optimal policies graphically illustrate the analysis.