Life-Cycle Asset Allocation and Unemployment Risk

2015 ◽  
Author(s):  
Fabio C. Bagliano ◽  
Carolina Fugazza ◽  
Giovanna Nicodano
Keyword(s):  
Life Cycle ◽  
Asset Allocation ◽  
Unemployment Risk

scholarly journals Life-cycle welfare losses from rules-of-thumb asset allocation

2021 ◽  
Vol 198 ◽  
pp. 109655
Author(s):  
Fabio C. Bagliano ◽  
Carolina Fugazza ◽  
Giovanna Nicodano
Keyword(s):  
Life Cycle ◽  
Asset Allocation ◽  
Welfare Losses ◽  
Rules Of Thumb

Optimal Life Cycle Unemployment Insurance

2015 ◽  
Vol 105 (2) ◽  
pp. 816-859 ◽  
Author(s):  
Claudio Michelacci ◽  
Hernán Ruffo
Keyword(s):  
Human Capital ◽  
Life Cycle ◽  
Moral Hazard ◽  
Unemployment Insurance ◽  
Older Workers ◽  
Life Cycle Model ◽  
Cycle Model ◽  
Welfare Gains ◽  
High Return ◽  
Unemployment Risk

We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers. (JEL D91, E24, J13, J64, J65)

Optimal Longevity Risk Management in the Retirement Stage of the Life Cycle

2018 ◽  
Keyword(s):  
Life Cycle ◽  
Life Expectancy ◽  
Asset Allocation ◽  
Wealth Distribution ◽  
Critical Role ◽  
Relative Price ◽  
Base Case ◽  
Longevity Risk ◽  
Allocation Policy ◽  
Multi Stage

The uncertainty in life expectancy plays a critical role in individual financial planning. Its impact is magnified during the retirement years (the wealth distribution stage of the life cycle), as new sources of income typically are not available to retired persons. Utilizing a multi-stage stochastic program, the authors model and solve the optimal asset allocation problem of a retired couple with uncertain life expectancy in the presence of a term life insurance policy. In the base case, they find optimal policies assuming no longevity risk (i.e., lifetime scenarios are uncertain although life expectancy is fixed on the retirement date). Next, they introduce longevity risk in the scenario generation stage through either a shift in the expected lifetimes or an unexpected cut in periodic retirement income. The authors find that the optimal asset allocation policy depends on the presence and the type of these risks, as well as the relative price of insurance and the size of any cut in pension benefits.

Life cycle asset allocation in the presence of housing and tax-deferred investing

2013 ◽  
Vol 37 (6) ◽  
pp. 1110-1125 ◽  
Author(s):  
Marcel Marekwica ◽  
Alexander Schaefer ◽  
Steffen Sebastian
Keyword(s):  
Life Cycle ◽  
Asset Allocation

Asset allocation and location over the life cycle with investment-linked survival-contingent payouts

2009 ◽  
Vol 33 (9) ◽  
pp. 1688-1699 ◽  
Author(s):  
Wolfram J. Horneff ◽  
Raimond H. Maurer ◽  
Olivia S. Mitchell ◽  
Michael Z. Stamos
Keyword(s):  
Life Cycle ◽  
Asset Allocation

scholarly journals Hyperbolic discounting and life-cycle portfolio choice

2015 ◽  
Vol 14 (4) ◽  
pp. 492-524 ◽  
Author(s):  
DAVID LOVE ◽  
GREGORY PHELAN
Keyword(s):  
Life Cycle ◽  
Stock Market ◽  
Portfolio Choice ◽  
Asset Allocation ◽  
Financial Literacy ◽  
Hyperbolic Discounting ◽  
Fixed Cost ◽  
Future Earnings ◽  
Financial Wealth ◽  
The Impact

AbstractThis paper studies how hyperbolic discounting affects stock market participation, asset allocation, and saving decisions over the life cycle in an economy with Epstein–Zin preferences. Hyperbolic discounting affects saving and portfolio decisions through at least two channels: (1) it lowers desired saving, which decreases financial wealth relative to future earnings; and (2) it lowers the incentive to pay a fixed cost to enter the stock market. We find that hyperbolic discounters accumulate less wealth relative to their geometric counterparts and that they participate in the stock market at a later age. Because they have lower levels of financial wealth relative to future earnings, hyperbolic discounters who do participate in the stock market tend to hold a higher share of equities, particularly in the retirement years. We find that increasing the elasticity of intertemporal substitution, holding risk aversion constant, greatly magnifies the impact of hyperbolic discounting on all of the model's decision rules and simulated levels of participation, allocation, and wealth. Finally, we introduce endogenous financial knowledge accumulation and find that hyperbolic discounting leads to lower financial literacy and inefficient stock market investment.

Life Cycle Asset Allocation in the Presence of Housing and Tax-Deferred Investing

2010 ◽  
Author(s):  
Marcel Marekwica ◽  
Steffen P. Sebastian ◽  
Alexander Schaefer
Keyword(s):  
Life Cycle ◽  
Asset Allocation

Life-cycle asset allocation and the peso problem: does ambiguity aversion matter?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nuno Silva
Keyword(s):  
Life Cycle ◽  
Stock Market ◽  
Asset Allocation ◽  
Stock Prices ◽  
Stock Price ◽  
Ambiguity Aversion ◽  
Content Type ◽  
Portfolio Decisions ◽  
State Of The Economy ◽  
The Impact

PurposeThe study aims to show that ambiguity aversion exerts a non-negligible effect on the investors' decisions, especially due to the possibility of sharp declines in stock prices.Design/methodology/approachThe vast majority of previous studies on life-cycle consumption and asset allocation assume that the equity premium is constant. This study evaluates the impact of rare disasters that shift the stock market to a low return state on investors' consumption and portfolio decisions. The author assumes that investors are averse to ambiguity relative to the current state of the economy and must incur a per period cost to participate in the stock market and solve their optimal consumption and asset allocation problem using dynamic programming.FindingsThe results show that most young investors choose not to invest in stocks because they have low accumulated wealth and the potential return from their stock market investments would not cover the participation costs. Furthermore, ambiguity-averse investors hold considerably fewer stocks throughout their lifetime than ambiguity-neutral ones. The fraction of wealth invested in stocks over the typical consumer's life is hump-shaped: it is low for a young individual, peaks at his early 30s and then decreases until his retirement age.Originality/valueTo the best of the author’s knowledge, this is the first study that assesses the impact of negative stock price jumps on the optimal portfolio of an ambiguity-averse investor.

scholarly journals Asset Allocation and Location over the Life Cycle with Survival-Contingent Payouts

2008 ◽  
Author(s):  
Wolfram Horneff ◽  
Raimond Maurer ◽  
Olivia Mitchell ◽  
Michael Stamos
Keyword(s):  
Life Cycle ◽  
Asset Allocation
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