|
|
|
|
||||
|
||||
Contingent Claims Analysis and Life-Cycle FinanceZvi BodieBoston University - Department of Finance & Economics Doriana RuffinoUniversity of Minnesota Jonathan TreussardZiff Brothers Investments - Risk Management March 24, 2008 MIT Sloan Research Paper No. 4676-08 Abstract: This paper explores the application of contingent claims analysis (CCA) to two "hot" issues in life-cycle finance: (1) investing for retirement and (2) deciding when, if ever, to switch careers. Participants in individual retirement accounts do not have the time or the knowledge to make their own investment decisions. Today they are defaulted into life-cycle mutual funds that pass all risk directly through to the participant. We use CCA to demonstrate how financial firms can design and produce guaranteed contingent benefit contracts that improve participant welfare at no additional cost to the system. In exploring the career-choice issue in the second part of the paper, we use CCA in a somewhat different way. The decision to switch careers is analogous to deciding when to exercise an American-style option to swap one asset for another. By applying the methods used to analyze the option-exercise decision to the career-switching problem, we gain some new insights beyond those derived from the traditional dynamic programming approaches.
Number of Pages in PDF File: 12 Keywords: contingent claims analysis, life-cycle finance, retirement saving plans JEL Classification: G11, G13, G22, G23, C61, D11, D81, D91 working papers seriesDate posted: December 27, 2007 ; Last revised: November 16, 2008Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo6 in 0.375 seconds
