Life-cycle investment and housing decisions with longevity annuities and reverse mortgage
0
조회
0
다운로드
0
인용
0
참고문헌
키워드
초록
We investigate optimal life-cycle consumption, investment, and housing decisions with longevity annuities and reverse mortgage. A risk-averse investor can hold financial assets, such as cash, bonds, and stocks, and can invest in housing, through renting and purchasing. Variable-rate mortgages are available. At retirement, the investor can release his housing equity through a reverse mortgage product. Longevity annuities are also available to support his income at advanced ages. We use multi-stage stochastic programming to solve the optimization problem numerically. Our numerical results show that longevity annuities can enhance non-housing consumption in retirement and the proceeds from reverse mortgage may raise not only housing and non-housing consumption in retirement but also non-housing consumption prior to retirement. Reverse mortgage also changes housing preference from renting to owning with a lower regular mortgage debt. Longevity annuities can help different risk-averse investors choose a suitable consumption stream in retirement. When social security cannot guarantee a high level of the replacement ratio, our model finds that longevity annuity and reverse mortgage can prevent housing and non-housing consumption drops in retirement. The housing ownership preference over rental however becomes more intense.
Abstract
We investigate optimal life-cycle consumption, investment, and housing decisions with longevity annuities and reverse mortgage. A risk-averse investor can hold financial assets, such as cash, bonds, and stocks, and can invest in housing, through renting and purchasing. Variable-rate mortgages are available. At retirement, the investor can release his housing equity through a reverse mortgage product. Longevity annuities are also available to support his income at advanced ages. We use multi-stage stochastic programming to solve the optimization problem numerically. Our numerical results show that longevity annuities can enhance non-housing consumption in retirement and the proceeds from reverse mortgage may raise not only housing and non-housing consumption in retirement but also non-housing consumption prior to retirement. Reverse mortgage also changes housing preference from renting to owning with a lower regular mortgage debt. Longevity annuities can help different risk-averse investors choose a suitable consumption stream in retirement. When social security cannot guarantee a high level of the replacement ratio, our model finds that longevity annuity and reverse mortgage can prevent housing and non-housing consumption drops in retirement. The housing ownership preference over rental however becomes more intense.
참고문헌 (38)
- Berger, A. J., "Worldwide asset and liability modeling", pp.634~665 (1998)
- Birge, J. R., "Introduction to Stochastic Programming" (2011), Springer
- Blake, D., "Pensionmetrics 2: stochastic pension plan design during the distribution phase", Insurance:Mathematics and Economics, 33, pp.29~47 (2003)
- Bodie, Z., "Labor supply flexibility and portfolio choice in a life cycle model", Journal of Economic Dynamics and Control, 16, pp.427~449 (1992)
- Cairns, A. J. G., "Stochastic lifestyling: Optimal dynamic asset allocation for defined contribution pension plans", Journal of Economic Dynamics and Control, 30, pp.843~877 (2006)
- Campbell, J. Y., "A multivariate model of strategic asset allocation", Journal of Financial Economics, 67, pp.41~80 (2003)
- The efficiency of the market for single-family homes, "Case, K. E.", National Bureau of Economic Research, ~ (1988)
- Consiglio, A., "www.Personal_asset_allocation", Interfaces, 34, pp.287~302 (2004)
- Consiglio, A., "Scenario optimization asset and liability modelling for individual investors", Annals of Operations Research, 152, pp.167~191 (2007)
- Consigli, G., "Path-dependent scenario trees for multistage stochastic programmes in finance", Quantitative Finance, 12, pp.1265~1281 (2012)
- Dempster, M. A. H., "Asset liability management for individual households", British Actuarial Journal, 16, pp.405~439 (2011)
- French, K. R., "Presidential Address: The Cost of Active Investing", The Journal of Finance, 63, pp.1537~1573 (2008)
- Gau, G. W., "Efficient Real Estate Markets: Paradox or Paradigm?", Real Estate Economics, 15, pp.1~12 (1987)
- Gomes, F. J., "Optimal Life-Cycle Investing with Flexible Labor Supply: A Welfare Analysis of Life-Cycle Funds", The American Economic Review, 98, pp.297~303 (2008)
- Gomes, F., "Optimal savings with taxable and tax-deferred accounts", Review of Economic Dynamics, 12, pp.718~735 (2009)
- Horneff, V., "Putting the Pension Back in 401(k) Retirement Plans: Optimal versus Default Deferred Longevity Income Annuities", Journal of Banking & Finance, 114, pp.105783~ (2020)
- Horneff, W. J., "Following the rules: Integrating asset allocation and annuitization in retirement portfolios", Insurance: Mathematics and Economics, 42, pp.396~408 (2008)
- Horneff, W. J., "Asset allocation and location over the life cycle with investment-linked survival-contingent payouts", Journal of Banking & Finance, 33, pp.1688~1699 (2009)
- Jang, C., "Glide paths for a retirement plan with deferred annuities", Journal of Pension Economics and Finance, 21, pp.565~581 (2022)
- Jang, C., "Lifetime consumption and investment with housing, deferred annuities and home equity release", Quantitative Finance, 22, pp.129~145 (2022)
- Kim, T. S., "Dynamic Nonmyopic Portfolio Behavior", The Review of Financial Studies, 9, pp.141~161 (1996)
- Koijen, R. S. J., "Optimal Annuity Risk Management", Review of Finance, 15, pp.799~833 (2011)
- Kraft, H., "Housing habits and their implications for life-cycle consumption and investment", Review of Finance, 22, pp.1737~1762 (2018)
- Kraft, H., "Optimal Housing, Consumption, and Investment Decisions over the Life Cycle", Management Science, 57, pp.1025~1041 (2011)
- Merton, R. C., "Lifetime portfolio selection under uncertainty: The continuous-time case", The Review of Economics and Statistics, 51, pp.247~257 (1969)
- Milevsky, M. A., "Annuitization and asset allocation", Journal of Economic Dynamics and Control, 31, pp.3138~3177 (2007)
- Munk, C., "Portfolio and consumption choice with stochastic investment opportunities and habit formation in preferences", Journal of Economic Dynamics and Control, 32, pp.3560~3589 (2008)
- Nemirovski, A. S., "Interior-point methods for optimization", Acta Numerica, 17, pp.191~234 (2008)
- Owadally, I., "Optimal investment for a retirement plan with deferred annuities", Insurance: Mathematics and Economics, 98, pp.51~62 (2021)
- Owadally, I., "Optimal investment for a retirement plan with deferred annuities allowing for inflation and labour income risk", European Journal of Operational Research, 295, pp.1132~1146 (2021)
- Park, S., "Optimal Annuitization Strategy with a Large, Negative Economic Shock", Journal of Risk Management, 32(2), pp.61~99 (2021)
- Park, S., "Optimal Annuitization with Markov Regime Switching Model", Journal of Risk Management, 34(3), pp.33~57 (2023)
- Samuelson, P. A., "Lifetime Portfolio Selection By Dynamic Stochastic Programming", The Review of Economics and Statistics, 51, pp.239~246 (1969)
- Szymanoski, E. J., "Risk and the Home Equity Conversion Mortgage", Real Estate Economics, 22, pp.347~366 (1994)
- Viceira, L. M., "Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income", The Journal of Finance, 56, pp.433~470 (2001)
- Wang, L., "Securitization of Longevity Risk in Reverse Mortgages", North American Actuarial Journal;Schaumburg, 12, pp.345~371 (2008)
- Weinrobe, M., "An Insurance Plan to Guarantee Reverse Mortgages: Abstract", Journal of Risk and Insurance (1986-1998); Malvern, 55, pp.644~ (1998)
- "S1PML/S1PFL All Pensioners (excluding dependants), male /female lives" (2019)[URL]