Article2004

Stochastic Target Hitting Time and the Problem of Early Retirement

41 citations0/0 files storedIEEE Transactions on Automatic Control

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Stochastic processes and financial applications Financial Literacy, Pension, Retirement Analysis Risk and Portfolio Optimization

Abstract

We consider a problem of optimal control of a "retirement investment fund" over a finite time horizon with a target hitting time criteria. That is, we wish to decide, at each stage, what percentage of the current retirement fund to allocate into the limited number of investment options so that a decision maker can maximize the probability that his or her wealth exceeds a target x prior to his or her retirement. We use Markov decision processes with probability criteria to model this problem and give an example based on data from certain options available in an Australian retirement fund.

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1959Portfolio Selection: Efficient Diversification of Investments 1952Safety First and the Holding of Assets 1991Continuous-Time Finance.

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2008Optimal investment, consumption and retirement choice problem with disutility and subsistence consumption constraints 2015Value-at-risk optimal policies for revenue management problems 2015Risk minimising strategies for revenue management problems with target values 2012Constrained Markov decision processes with first passage criteria

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