Essays on intertemporal consumption and portfolio choice

Research output: ThesisDoctoral ThesisScientific

592 Downloads (Pure)

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

Fingerprint

Portfolio choice
Financial shocks
Loss aversion
Optimal portfolio
Variable annuities
Risk management
Pension plans
Smoothing
Pensions
Pricing
Optimal consumption
Investment horizon
Stochastic differential utility
Risk factors
Multiple risks
Habit formation
Discount rate
Probability weighting
Risk sharing
Trigger

Cite this

van Bilsen, S. (2015). Essays on intertemporal consumption and portfolio choice. Tilburg: CentER, Center for Economic Research.
van Bilsen, Servaas. / Essays on intertemporal consumption and portfolio choice. Tilburg : CentER, Center for Economic Research, 2015. 261 p.
@phdthesis{3475a3c2b85d404f8b5d21027bb1a085,
title = "Essays on intertemporal consumption and portfolio choice",
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 portfoliochoice 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 forwhich 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.",
author = "{van Bilsen}, Servaas",
year = "2015",
language = "English",
isbn = "978 90 5668 462 4",
series = "CentER Dissertation Series",
publisher = "CentER, Center for Economic Research",
school = "Tilburg University",

}

van Bilsen, S 2015, 'Essays on intertemporal consumption and portfolio choice', Doctor of Philosophy, Tilburg University, Tilburg.

Essays on intertemporal consumption and portfolio choice. / van Bilsen, Servaas.

Tilburg : CentER, Center for Economic Research, 2015. 261 p.

Research output: ThesisDoctoral ThesisScientific

TY - THES

T1 - Essays on intertemporal consumption and portfolio choice

AU - van Bilsen, Servaas

PY - 2015

Y1 - 2015

N2 - 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 portfoliochoice 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 forwhich 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.

AB - 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 portfoliochoice 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 forwhich 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.

M3 - Doctoral Thesis

SN - 978 90 5668 462 4

T3 - CentER Dissertation Series

PB - CentER, Center for Economic Research

CY - Tilburg

ER -

van Bilsen S. Essays on intertemporal consumption and portfolio choice. Tilburg: CentER, Center for Economic Research, 2015. 261 p. (CentER Dissertation Series).