Bulletin of the
Korean Mathematical Society
BKMS

ISSN(Print) 1015-8634 ISSN(Online) 2234-3016

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Bull. Korean Math. Soc. 2023; 60(4): 1101-1129

Online first article July 11, 2023      Printed July 31, 2023

https://doi.org/10.4134/BKMS.b220553

Copyright © The Korean Mathematical Society.

A model of retirement and consumption-portfolio choice

Junkee Jeon, Hyeng Keun Koo

Kyung Hee University; Ajou University

Abstract

In this study we propose a model of optimal retirement, consumption and portfolio choice of an individual agent, which encompasses a large class of the models in the literature, and provide a methodology to solve the model. Different from the traditional approach, we consider the problems before and after retirement simultaneously and identify the difference in the dual value functions as the utility value of lifetime labor. The utility value has an option nature, namely, it is the maximized value of choosing the retirement time optimally and we discover it by solving a variational inequality. Then, we discover the dual value functions by using the utility value. We discover the value function and optimal policies by establishing a duality between the value function and the dual value function. The model and approach offer a significant advantage for computation of optimal policies for a large class of problems.

Keywords: Consumption, human wealth, option value, portfolio, retirement, utility function

MSC numbers: 91G10

Supported by: This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea(NRF-2021S1A5A2A03065678).

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