arXiv · arXiv q-fin · 2025
What grounds the rule of thumb that a(n American) retiree can safely withdraw 4% of their initial retirement wealth in their first year of retirement, then increase that rate of consumption with inflation? I address that question with a discrete-time model of returns to a retirement portfolio consumed at a rate that grows by $s$ per period. The model's key parameter is $γ$, an $s$-adjusted rate of return to wealth, d…
Drew M. Thomas
arXiv · arXiv q-fin · 2023
Consumer credit services offered by e-commerce platforms provide customers with convenient loan access during shopping and have the potential to stimulate sales. To understand the causal impact of credit lines on spending, previous studies have employed causal estimators, based on direct regression (DR), inverse propensity weighting (IPW), and double machine learning (DML) to estimate the treatment effect. However, t…
Yijun Li, Cheuk Hang Leung, Xiangqian Sun, Chaoqun Wang, Yiyan Huang
arXiv · arXiv q-fin · 2022
We explore the implications of a preference ordering for an investor-consumer with a strong preference for keeping consumption above an exogenous social norm, but who is willing to tolerate occasional dips below it. We do this by splicing two CRRA preference orderings, one with high curvature below the norm and the other with low curvature at or above it. We find this formulation appealing for many endowment funds an…
Knut Anton Mork, Fabian Andsem Harang, Haakon Andreas Trønnes, Vegard Skonseng Bjerketvedt
arXiv · arXiv q-fin · 2021
We extend the Annually Recalculated Virtual Annuity (ARVA) spending rule for retirement savings decumulation to include a cap and a floor on withdrawals. With a minimum withdrawal constraint, the ARVA strategy runs the risk of depleting the investment portfolio. We determine the dynamic asset allocation strategy which maximizes a weighted combination of expected total withdrawals (EW) and expected shortfall (ES), def…
Peter A. Forsyth, Kenneth R. Vetzal, Graham Westmacott
arXiv · arXiv q-fin · 2018
We solve a lifecycle model in which the consumer's chronological age does not move in lockstep with calendar time. Instead, biological age increases at a stochastic non-linear rate in time like a broken clock that might occasionally move backwards. In other words, biological age could actually decline. Our paper is inspired by the growing body of medical literature that has identified biomarkers which indicate how pe…
Huaxiong Huang, Moshe A. Milevsky, Thomas S. Salisbury
arXiv · arXiv q-fin · 2015
There is, among the economist ecosystem, the idea of virtuous public spending as a form of promotion of economic growth. If we think on the way GDP is measured, it is not possible to get that conclusion because it becomes circular: measuring the money flow obviously will detect directly the public spending but always mixed with the flow of money from other sources. The question is how virtuous is public spending per …
João P. da Cruz
arXiv · arXiv q-fin · 2005
The effects of saving and spending patterns on holding time distribution of money are investigated based on the ideal gas-like models. We show the steady-state distribution obeys an exponential law when the saving factor is set uniformly, and a power law when the saving factor is set diversely. The power distribution can also be obtained by proposing a new model where the preferential spending behavior is considered.…
Ning Ding, Ning Xi, Yougui Wang
arXiv · arXiv · 2021
This paper studies an optimal consumption problem for a loss-averse agent with reference to past consumption maximum. To account for loss aversion on relative consumption, an S-shaped utility is adopted that measures the difference between the non-negative consumption rate and a fraction of the historical spending peak. We consider the concave envelope of the utility with respect to consumption, allowing us to focus …
Xun Li, Xiang Yu, Qinyi Zhang
arXiv · arXiv q-fin · 2026
Volatility is the language in which finance often describes risk, but it is not the language in which institutions experience risk. Allocators live through drawdowns, liquidity needs, spending rules, rebalance decisions, board oversight, and the interval between a prior high-water mark and full recovery. This paper develops a path-dependent framework for asymmetric volatility management. The arithmetic of recovery is…
Gregory A. Fanous
arXiv · arXiv q-fin · 2026
Strategic Asset Allocation and the Total Portfolio Approach differ in one thing: the tracking error the board grants the chief investment officer. The board's first decision should be the drawdown it can tolerate; the benchmark and tracking error budget follow. The value comes from spending that budget dynamically, adding active risk when the reward is high and shedding it as the fund nears its limit. Managed this wa…
Ashwin Alankar, Allan Maymin, Philip Maymin, Myron Scholes, Sujiang Zhang
arXiv · arXiv q-fin · 2026
Classical portfolio optimization treats expected returns, covariances, and allocations as deterministic. Modern practice replaces at least one by a distribution: a posterior over parameters, a law of future returns, a stochastic allocation policy, or a distributional-robustness set. We call distributional portfolio optimization (DPO) the unified framework in which weights, returns, and parameters are all modeled as p…
Miquel Noguer i Alonso
arXiv · arXiv q-fin · 2024
Financial inclusion ensures that individuals have access to financial products and services that meet their needs. As a key contributing factor to economic growth and investment opportunity, financial inclusion increases consumer spending and consequently business development. It has been shown that institutions are more profitable when they provide marginalised social groups access to financial services. Customer se…
Tristan Bester, Benjamin Rosman
arXiv · arXiv q-fin · 2020
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the optimal investment strategy under the specific condition on model parameters in terms of second-order ordinary differential equations. We demonstrate an endogenous number that measures…
Weidong Tian, Zimu Zhu
arXiv · arXiv · 2013
Designed to compete with fiat currencies, bitcoin proposes it is a crypto-currency alternative. Bitcoin makes a number of false claims, including: solving the double-spending problem is a good thing; bitcoin can be a reserve currency for banking; hoarding equals saving, and that we should believe bitcoin can expand by deflation to become a global transactional currency supply. Bitcoin's developers combine technical i…
Brian P. Hanley
arXiv · arXiv · 2009
The financial crisis of 2008, which started with an initially well-defined epicenter focused on mortgage backed securities (MBS), has been cascading into a global economic recession, whose increasing severity and uncertain duration has led and is continuing to lead to massive losses and damage for billions of people. Heavy central bank interventions and government spending programs have been launched worldwide and es…
Didier Sornette, Ryan Woodard
arXiv · arXiv q-fin · 2016
Decisions taken in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market therefore provides a rich environment to study how people take decision since responding to market uncertainty needs a constant update of these strategies. For this purpose, we run a lab-in-the-field experiment where volunteers are given a con…
Mario Gutiérrez-Roig, Carlota Segura, Jordi Duch, Josep Perelló