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Optimal investment, consumption and retirement decision with disutility and borrowing constraints

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  • Byung Hwa Lim
  • Yong Shin

Abstract

In this paper we consider a general consumption, portfolio and retirement optimization problem in which a working investor has borrowing constraints. Closed-form solutions are obtained for the utility maximization problems, and numerical procedures are given for the general utility function under borrowing constraints. Moreover, we apply the results to the special utility function, the constant relative risk-aversion utility function, and the numerical results suggest that the restriction to borrowing future labor income makes the investor retire at a lower critical wealth level than in the case of no borrowing constraints.

Suggested Citation

  • Byung Hwa Lim & Yong Shin, 2011. "Optimal investment, consumption and retirement decision with disutility and borrowing constraints," Quantitative Finance, Taylor & Francis Journals, vol. 11(10), pages 1581-1592.
    • Handle: RePEc:taf:quantf:v:11:y:2011:i:10:p:1581-1592
    DOI: 10.1080/14697680903369526
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    Cited by:

    1. Luz A. Flórez & Catalina Granda, 2019. "Retirement choice in a frictionless labor market," Economics Bulletin, AccessEcon, vol. 39(1), pages 734-740.
    2. Ho-Seok Lee, 2021. "Life Insurance and Subsistence Consumption with an Exponential Utility," Mathematics, MDPI, vol. 9(4), pages 1-10, February.
    3. Andreas Karathanasopoulos & Chia Chun Lo & Xiaorong Ma & Zhenjiang Qin, 2021. "Maintaining cost and ruin probability," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 759-793, August.
    4. Lee, Ho-Seok & Lim, Byung Hwa, 2023. "Personal bankruptcy and post-bankruptcy liquidity constraint," Journal of Banking & Finance, Elsevier, vol. 152(C).
    5. Junkee Jeon & Hyeng Keun Koo & Yong Hyun Shin & Zhou Yang, 2021. "An Integral Equation Representation for Optimal Retirement Strategies in Portfolio Selection Problem," Computational Economics, Springer;Society for Computational Economics, vol. 58(3), pages 885-914, October.
    6. Luo, Shangzhen & Wang, Mingming & Zhu, Wei, 2022. "Time-inconsistent life-cycle consumption and retirement choice with mortality risk," Applied Mathematics and Computation, Elsevier, vol. 433(C).

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