On optimal retirement

DOI10.1239/JAP/1402578628MaRDI QIDQ5169728zbMATHOpenAlexFDO

Authors Dean P. Foster, Larry Shepp, Philip Ernst

Publication date 11 July 2014

Published in Journal of Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1605.01028

zbMATH Keywords

optimal controlstochastic differential equationsItō processretirement investing

Mathematics Subject Classification ID

Diffusion processes (60J60) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Applications of optimal control and differential games (49N90) Financial applications of other theories (91G80) Optimal stochastic control (93E20)

Abstract: We pose an optimal control problem arising in a perhaps new model for retirement investing. Given a control function $f$ and our current net worth as $X(t)$ for any $t$, we invest an amount $f(X(t))$ in the market. We need a fortune of $M$ "superdollars" to retire and want to retire as early as possible. We model our change in net worth over each infinitesimal time interval by the Ito process $dX(t)=(1+f(X(t))dt+f(X(t))dW(t)$. We show how to choose the optimal $f=f_0$ and show that the choice of $f_0$ is optimal among all nonanticipative investment strategies, not just among Markovian ones.

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Cited in

(9)

• Exercising control when confronted by a (Brownian) spider
• Dual control methods for a mixed control problem with optimal stopping arising in optimal consumption and investment
• On financing retirement with an aging population
• The value of foresight
• Optimal retirement in a general market environment
• Building Better Retirement Income Models
• Fair retirement under risky lifetime
• scientific article; zbMATH DE number 6269183 (Why is no real title available?)
• CARA UTILITY AND OPTIMAL RETIREMENT

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