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Optimal retirement with borrowing constraints and forced unemployment risk
journal contribution
posted on 2020-07-22, 10:56 authored by Bong-Gyu Jang, Seyoung Park, Huainan ZhaoHuainan ZhaoIn this paper, we study optimal retirement in a two-dimensional incomplete market caused by borrowing constraints and forced unemployment risk. We show that the two aspects jointly affect an individual's optimal consumption, investment, and retirement strategies. In contrast to the complete market case, the endogenously determined wealth threshold for retirement is significantly affected by the two-dimensional market incompleteness, resulting in a lower wealth threshold. We also discuss a possible unemployment insurance scheme for the borrowing-constrained individual to respond to the shocks of forced unemployment.
Funding
Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2019S1A5A2A03054249)
National Natural Science Foundation of China (Grant No. 71991473 and 71671076)
History
School
- Business and Economics
Department
- Business
Published in
Insurance: Mathematics and EconomicsVolume
94Pages
25 - 39Publisher
ElsevierVersion
- AM (Accepted Manuscript)
Rights holder
© Elsevier B.V.Publisher statement
This paper was accepted for publication in the journal Insurance: Mathematics and Economics and the definitive published version is available at https://doi.org/10.1016/j.insmatheco.2020.06.002.Acceptance date
2020-06-02Publication date
2020-06-13Copyright date
2020ISSN
0167-6687Publisher version
Language
- en