Optimal Retirement Planning Under Partial Information

28 Pages Posted: 5 Dec 2018

See all articles by Nicole Bäuerle

Nicole Bäuerle

University of Karlsruhe

An Chen

University of Ulm

Date Written: June 29, 2018

Abstract

The present paper analyses an optimal consumption and investment problem of a retiree with a constant relative risk aversion (CRRA) who faces parameter uncertainty about the financial market.

We solve the optimization problem under partial information by making the market observationally complete and consequently applying the martingale method to obtain closed-form solutions to the optimal consumption and investment strategies. Further, we provide some comparative statics and numerical analyses to deeply understand the consumption and investment behavior under partial information. Bearing partial information has little impact on the optimal consumption level, but it makes retirees with a RRA smaller than one invest more riskily, while it makes retirees with a RRA larger than one invest more conservatively.

Keywords: Partial Information, Optimal Consumption, Optimal Asset Allocation, CRRA

JEL Classification: C6, G1, D9

Suggested Citation

Bäuerle, Nicole and Chen, An, Optimal Retirement Planning Under Partial Information (June 29, 2018). Available at SSRN: https://ssrn.com/abstract=3209513 or http://dx.doi.org/10.2139/ssrn.3209513

Nicole Bäuerle

University of Karlsruhe ( email )

Postbox
D-76128 Karlsruhe, DE 76128
Germany

An Chen (Contact Author)

University of Ulm ( email )

Helmholtzstrasse 20
Ulm, D-89081
Germany

HOME PAGE: http://www.uni-ulm.de/mawi/ivw/team

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