2023/05/08 by Snezhana Kirusheva, Kirusheva, Snezhana, Thomas S. Salisbury +1
Business, Management and Accounting · Economics, Econometrics and Finance · #91G10 #Economic theories and models #FOS: Economics and business #Financial Literacy, Pension, Retirement Analysis #Fiscal Policy and Economic Growth #Portfolio Management (q-fin.PM)
paper · pdf · doi:10.48550/arxiv.2305.04748
openalex publication_date 2023/05/08 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We consider the problem of optimizing lifetime consumption under a habit formation model, both with and without an exogenous pension. Unlike much of the existing literature, we apply a power utility to the ratio of consumption to habit, rather than to their difference. The martingale/duality method becomes intractable in this setting, so we develop a greedy version of this method that is solvable using Monte Carlo simulation. We investigate the behaviour of the greedy solution, and explore what parameter values make the greedy solution a good approximation to the optimal one.