Retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment. With voluntary retirement, there exists an optimal wealth-towage ratio threshold for retirement and human capital correlates negatively with the stock market...

We study the consumption and investment model under time-varying liquidity constraints (TVLC) that are widely used in reality. We first develop a martingale method to analyze the case in which the borrowing limit is specified by the debt-to-income ratio limit and then extend this framework to...

We study the consumption and portfolio selection problem of an agent who faces consumption irreversibility: there is disutility from changing consumption levels. The derived preference exhibits intertemporal loss aversion toward consumption changes with the previous consumption level being the...

We examine the problem of an investor who trades in a market with unobservable regime shifts. The investor learns from past prices and is subject to transaction costs. Our model generates significantly larger liquidity premia compared to a benchmark model with observable market shifts. The...

In this paper we analyze the numerical scheme applied in Damgaard (2000a) to compute reservation prices of European options. In addition, we suggest and implement a procedure for computing reservation purchase prices of American options. In the paper we consider a continuous time economy with...

We study the consumption and investment choice of an agent in a continuous-time economy with a riskless asset, several risky financial assets, and two consumption goods, namely a perishable and a durable good with an uncertain price evolution. Assuming lognormal prices and a multiplicatively...

We examine the problem of finding investors' reservation prices of European contingent claims in a continuous time finite horizon economy with proportional transaction costs. We derive analytically numerous properties of reservation prices reflecting their dependency on the size of the option...

In response to how they are compensated, mutual fund managers who are under-performing by mid-year are likely to increase the risk of their portfolios towards the year-end. We argue that an increase in the liquidity of the stocks that managers use to shift risk can lead to an increase in the...

Most existing portfolio choice models ignore the prevalent periodic market closure and the fact that market volatility is significantly higher during trading periods. We find that market closure and the volatility difference across trading and nontrading periods significantly change optimal...

In this paper, we use a simple model to illustrate that the existence of a large, negative wealth shock and insufficient insurance against such a shock can potentially explain both the limited stock market participation puzzle and the low-consumption-high-savings puzzle that are widely...