On optimal retirement

DOI10.1239/JAP/1402578628zbMATH Open1311.60061arXiv1605.01028OpenAlexW2044770765MaRDI QIDQ5169728FDOQ5169728

Dean P. Foster, Larry Shepp, Philip Ernst

Publication date: 11 July 2014

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

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.

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

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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)

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Cited In (8)

• Title not available (Why is that?)
• Optimal retirement in a general market environment
• CARA UTILITY AND OPTIMAL RETIREMENT
• Building Better Retirement Income Models
• On financing retirement with an aging population
• The value of foresight
• Exercising control when confronted by a (Brownian) spider
• Fair retirement under risky lifetime

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