The Effect of Selecting the Type of Objective Function on Individual Default in Individual Retirement Account (Case study: Iran)
Subject Areas : Financial Knowledge of Securities AnalysisEzatollah Abbasian 1 , Mohammad Ali Kamali 2 , Reza Tehrani 3 , Mojtaba Mirlohi 4
1 - Associate Professor in Economics, Department of economics, Bu Ali Sina University, Hamedan, Iran.
2 - PhD Student in Financial Management, Management Faculty, University of Alborz campous Tehran, Iran.
3 - Professor in financial management, faculty of management, University of Tehran, Tehran, Iran.
4 - Assistant professor in financial management, University of Shahroud, shahroud, Iran.
Keywords: Optimization, Retirement, Simulation, Dynamic Planning, Bootstrap Method,
Abstract :
A retired person faces two major risks: life-long risk and investment risk. In this paper, we examine the effect of decision-making policy on the amount of defaults by using two objective functions for wealth at retirement time. The expressed policies relate to the return on target markets for investment and the discount rate in the economy. In the modeling of these policies, a dynamic programming approach combined with historical simulation has been used. The results indicate the importance of selecting the objective function. Given the severe economic fluctuations in the country, as well as the need for greater wealth accumulation and greater participation in controlling economic fluctuations, the policy of focusing on pension with the lower wealth in retirement period as an optimal policy - because of the acceptance of lower risk for a certain level of wealth - and more use of the wealth function during retirement time is suggested.
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