IDEAS home Printed from https://ideas.repec.org/a/bla/eufman/v18y2012i3p324-351.html
   My bibliography  Save this article

Post†Retirement Financial Strategies: Forecasts and Valuation

Author

Listed:
  • William F. Sharpe

Abstract

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.

Suggested Citation

  • William F. Sharpe, 2012. "Post†Retirement Financial Strategies: Forecasts and Valuation," European Financial Management, European Financial Management Association, vol. 18(3), pages 324-351, June.
  • Handle: RePEc:bla:eufman:v:18:y:2012:i:3:p:324-351
    DOI: 10.1111/j.1468-036X.2011.00639.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1468-036X.2011.00639.x
    Download Restriction: no

    File URL: https://libkey.io/10.1111/j.1468-036X.2011.00639.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    2. Philip H. Dybvig, 1988. "Inefficient Dynamic Portfolio Strategies or How to Throw Away a Million Dollars in the Stock Market," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 67-88.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bernard, Carole & Chen, Jit Seng & Vanduffel, Steven, 2015. "Rationalizing investors’ choices," Journal of Mathematical Economics, Elsevier, vol. 59(C), pages 10-23.
    2. L. Rüschendorf & Steven Vanduffel, 2020. "On the construction of optimal payoffs," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(1), pages 129-153, June.
    3. Farid Mkouar & Jean-Luc Prigent, 2014. "Long-Term Investment with Stochastic Interest and Inflation Rates Incompleteness and Compensating Variation," Working Papers 2014-301, Department of Research, Ipag Business School.
    4. André Palma & Jean-Luc Prigent, 2009. "Standardized versus customized portfolio: a compensating variation approach," Annals of Operations Research, Springer, vol. 165(1), pages 161-185, January.
    5. Bernard, C. & De Gennaro Aquino, L. & Vanduffel, S., 2023. "Optimal multivariate financial decision making," European Journal of Operational Research, Elsevier, vol. 307(1), pages 468-483.
    6. Akihiko Takahashi & Kyo Yamamoto, 2009. "Generating a Target Payoff Distribution with the Cheapest Dynamic Portfolio: An Application to Hedge Fund Replication," CARF F-Series CARF-F-308, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Feb 2013.
    7. Moshe Arye Milevsky & Steven Posner, 1998. "A theoretical investigation of randomized asset allocation strategies," Applied Mathematical Finance, Taylor & Francis Journals, vol. 5(2), pages 117-130.
    8. James Kung, 2008. "Dynamic strategies for fixed-income investment," Applied Economics, Taylor & Francis Journals, vol. 40(10), pages 1341-1354.
    9. Auffret, Philippe, 2001. "An alternative unifying measure of welfare gains from risk-sharing," Policy Research Working Paper Series 2676, The World Bank.
    10. Chen, An & Hieber, Peter & Sureth, Caren, 2022. "Pay for tax certainty? Advance tax rulings for risky investment under multi-dimensional tax uncertainty," arqus Discussion Papers in Quantitative Tax Research 273, arqus - Arbeitskreis Quantitative Steuerlehre.
    11. Sanchez-Romero, Miguel, 2006. "“Demand for Private Annuities and Social Security: Consequences to Individual Wealth”," Working Papers in Economic Theory 2006/07, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    12. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    13. Luca Di Persio & Luca Prezioso & Kai Wallbaum, 2019. "Closed-End Formula for options linked to Target Volatility Strategies," Papers 1902.08821, arXiv.org.
    14. John H. Cochrane, 1999. "New facts in finance," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 23(Q III), pages 36-58.
    15. Larrain, Borja, 2011. "World betas, consumption growth, and financial integration," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 999-1018, October.
    16. Song, Dandan & Wang, Huamao & Yang, Zhaojun, 2014. "Learning, pricing, timing and hedging of the option to invest for perpetual cash flows with idiosyncratic risk," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 1-11.
    17. Devereux, Michael B. & Saito, Makoto, 1997. "Growth and risk-sharing with incomplete international assets markets," Journal of International Economics, Elsevier, vol. 42(3-4), pages 453-481, May.
    18. John Y. Campbell & Luis M. Viceira & Joshua S. White, 2003. "Foreign Currency for Long-Term Investors," Economic Journal, Royal Economic Society, vol. 113(486), pages 1-25, March.
    19. repec:dau:papers:123456789/56 is not listed on IDEAS
    20. Stephen Satchell & Susan Thorp, 2007. "Scenario Analysis with Recursive Utility: Dynamic Consumption Plans for Charitable Endowments," Research Paper Series 209, Quantitative Finance Research Centre, University of Technology, Sydney.
    21. Cuoco, Domenico & Liu, Hong, 2000. "Optimal consumption of a divisible durable good," Journal of Economic Dynamics and Control, Elsevier, vol. 24(4), pages 561-613, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:eufman:v:18:y:2012:i:3:p:324-351. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/efmaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.