Post-Retirement Financial Strategies: Forecasts and Valuation

This paper uses a discrete‐time, discrete‐state Monte Carlo simulation model to evaluate representative strategies for investing and spending a fixed sum designed to fund consumption during the period after retirement. Two assets are considered – one providing a riskless real return, the other a mar...

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Bibliographic Details
Published inEuropean financial management : the journal of the European Financial Management Association Vol. 18; no. 3; pp. 324 - 351
Main Author Sharpe, William F.
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.06.2012
Subjects
Arrow-Debreu state prices
Bonds
Consumption
D14
Discrete-time model
Evaluation
Financial models
G11
G17
G21
Investment returns
Monte Carlo simulation
Portfolio analysis
pricing
Retirement
Retirement planning
Return on investment
simulation
Stochastic processes
Stocks
Strategic management
strategy
Studies
valuation
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Summary:This paper uses a discrete‐time, discrete‐state Monte Carlo simulation model to evaluate representative strategies for investing and spending a fixed sum designed to fund consumption during the period after retirement. Two assets are considered – one providing a riskless real return, the other a market portfolio of bonds and stocks. A stochastic process for the returns from the market portfolio is proposed. Then a set of Arrow‐Debreu state prices is obtained on the assumption that the market portfolio is an efficient investment strategy. The model is used to forecast ranges of consumption and ranges of the ratios of year‐to‐year consumption, and also to estimate the values of components of future consumption.
Bibliography:ArticleID:EUFM639
ark:/67375/WNG-30LJSHV2-W
istex:2E73F4ECEF2FD0154A9C66E1BED6A887813B9C4C
Keynote address at the European Financial Management Association Annual Meeting, 24 June 2011, Braga, Portugal.
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:1354-7798
1468-036X
DOI:10.1111/j.1468-036X.2011.00639.x