Online Appendix to Efficient Timing of Retirement
Post-retirement, the model in the main text (published in the Review of Economic Dynamics) reduces to the Merton (1969) problem, which has of course an exact solution. Pre-retirement, however, the agent holds an American option, namely, retire now or keep working. Problems involving American options are generally difficult to solve exactly. This appendix describes an approximate solution to the agent's pre-retirement problem.
|Date of creation:||Apr 2001|
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|Note:||The original article was published in the Review of Economic Dynamics, volume (2000), pages 831-840|
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