Stochastic target hitting time and the problem of early retirement
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Date
2004Author
Boda, Kang
Filar, Jerzy A
Lin, Yuanlie
Spanjers, Lieneke
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We consider a problem of optimal control of a “retirement
investment fund” over a finite time horizon with a target
hitting time criteria. That is, we wish to decide, at each stage, what
percentage of the current retirement fund to allocate into the limited
number of investment options so that a decision maker can
maximize the probability that his or her wealth exceeds a target
prior to his or her retirement. We use Markov decision processes
with probability criteria to model this problem and give an example
based on data from certain options available in an Australian retirement
fund.