Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/337246 
Authors: 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of Derivatives and Quantitative Studies: Seonmul yeon'gu (JDQS) [ISSN:] 2713-6647 [Volume:] 30 [Issue:] 2 [Year:] 2022 [Pages:] 125-142
Publisher: 
Emerald, Leeds
Abstract: 
In this paper, we view an individual's annuitization decision as an American style call option whose underlying asset is financial wealth, which controls the distance to annuitization. We then derive a certain threshold of wealth over which the individual is optimal to annuitize all of her wealth. We particularly focus on the effects of liquidity constraints on the individual's optimal annuitization decision, concerning their effects on the optimal investment and consumption strategies. We show that the annuitization decision can be significantly affected by the extent to which individual borrowing is constrained. More specifically, the optimal decision is for the individual to annuitize earlier with the tighter liquidity constrains she is exposed to than initially planned. This is particularly relevant to today's pandemic situation especially with the growing concern about cutting credit limits.
Subjects: 
Liquidity constraints
Annuitization
Investment
Consumption
JEL: 
D15
D58
G11
G12
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article

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