Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/167907
Authors: 
Zhang, Jinhui
Purcal, Sachi
Wei, Jiaqin
Year of Publication: 
2017
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 5 [Year:] 2017 [Issue:] 1 [Pages:] 1-20
Abstract: 
We consider the financial planning problem of a retiree wishing to enter a retirement village at a future uncertain date. The date of entry is determined by the retiree's utility and bequest maximisation problem within the context of uncertain future health states. In addition, the retiree must choose optimal consumption, investment, bequest and purchase of insurance products prior to their full annuitisation on entry to the retirement village. A hyperbolic absolute risk-aversion (HARA) utility function is used to allow necessary consumption for basic living and medical costs. The retirement village will typically require an initial deposit upon entry. This threshold wealth requirement leads to exercising the replication of an American put option at the uncertain stopping time. From our numerical results, active insurance and annuity markets are shown to be a critical aspect in retirement planning.
Subjects: 
retirement village
optimal control
optimal stopping
HARA
American put option
long-term care needs
costs and products for the elderly
disability/health state transitions
life-cycle modelling related to the retirement phase
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
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