Analytic approach for models of optimal retirement with disability risk

Models of optimal retirement should reflect market incompleteness in reality caused by disability risk. In this paper, we develop an analytic approach for optimal retirement models with disability risk. More precisely, we provide an analytically tractable characterization of total wealth that is the...

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Bibliographic Details
Published inMathematical social sciences Vol. 126; pp. 68 - 75
Main Authors Chae, Jiwon, Jang, Bong-Gyu, Park, Seyoung
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.11.2023
Subjects
Disability risk
Optimal consumption and portfolio
Retirement
Total wealth
Optimal consumption and portfolio
Disability risk
Total wealth
Retirement
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Summary:Models of optimal retirement should reflect market incompleteness in reality caused by disability risk. In this paper, we develop an analytic approach for optimal retirement models with disability risk. More precisely, we provide an analytically tractable characterization of total wealth that is the sum of financial wealth and the present value of future income. We then provide analytic properties of the retirement wealth threshold. Finally, we derive the analytical optimal consumption and portfolio choice with retirement and disability risk. •We develop an analytic incomplete-market approach for optimal retirement models with disability risk.•Analytically tractable optimal strategies are provided.•Various mathematical and economic properties of optimal strategies are obtained.
ISSN:0165-4896
1879-3118
DOI:10.1016/j.mathsocsci.2023.09.007