Stochastic target hitting time and the problem of early retirement

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Date
2004
Authors
Boda, Kang
Filar, Jerzy A
Lin, Yuanlie
Spanjers, Lieneke
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Volume Title
Publisher
Institute of Electrical and Electronic Engineers
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Abstract
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.
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Keywords
Mathematics, Stochastic Modelling, Markov Decision Processes
Citation
Boda, K., Filar, J.A., Lin, Y. and Spanjers, L., 2004. Stochastic target hitting time and the problem of early retirement. IEEE Transactions on Automatic Control, 49(3), 409-419.