Essays on intertemporal consumption and portfolio choice

Research output: ThesisDoctoral Thesis

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Abstract

This dissertation consists of two parts, preceded by an introductory chapter. Part I (Chapters 2, 3 and 4) considers optimal consumption and portfolio choice using preference models. Chapter 2 analyzes optimal consumption and portfolio choice under loss aversion and endogenous updating of the reference level. I find that loss aversion triggers a demand for ‘‘guarantee like’’ features in pension products, and endogenous updating justifies a mechanism for smoothing the change in consumption due to financial shocks. Chapter 3 extends Chapter 2 by including probability weighting. I show that if the agent substantially distorts small probabilities, the model generates an endogenous floor on consumption. Chapter 4 considers a consumption and portfolio
choice model that combines the ratio model of habit formation with stochastic differential utility. I show that the agent gradually adjusts consumption to financial shocks, justifying a return smoothing mechanism. Part II (Chapters 5, 6 and 7) explores the modelling of pension plans. Chapter 5 formalizes a new pension contract, a so-called personal pension plan with risk sharing (PPR). This chapter explores a consumption approach and an investment approach to a PPR. Chapter 6 explores the pricing and risk management of variable annuities for
which the payouts respond gradually to financial shocks. I show that the market-consistent discount rate rises with the investment horizon. Finally, Chapter 7 explores the pricing and risk management of variable annuities in an economy with multiple risk factors.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Tilburg University
Supervisors/Advisors
  • Laeven, R.J.A., Promotor
  • Nijman, Theo, Promotor
  • Bovenberg, Lans, Promotor
Award date4 Nov 2015
Place of PublicationTilburg
Publisher
Print ISBNs978 90 5668 462 4
Publication statusPublished - 2015

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van Bilsen, S. (2015). Essays on intertemporal consumption and portfolio choice. CentER, Center for Economic Research.