Illustration of life cycle portfolio choice for stylized Swiss investors


In the previous chapter, Swiss micro data was used to estimate realistic age-earnings processes and corresponding variances for different socioeconomic groups of Swiss workers. Results were obtained for women and men with elementary, secondary or higher education and with different activity rates. The estimation results can now be applied to calibrate any conceivable life cycle model of portfolio choice, as long as the specified labor income process corresponds to the estimated process (3.5) with (3.4) and with the distributional assumption that ε t ; and u t are iid normally distributed with mean zero and variances σ ε 2 and σ u 2 , respectively.


Portfolio Choice Conditional Survival Life Cycle Model Single Investor Conceivable Life Cycle 
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  1. 7.
    Cited indirectly through Drobetz (2000).Google Scholar
  2. 10.
    It must be an unknown type of individualized system because if the exact form of individualization were known, the worker’s pension would depend on her choices before retirement. Her replacement rate would then no longer be exogenous, as assumed in the model of Cocco et al. (2005). This would suggest to endogenize the additional choices implied by an individualized system and thus the replacement rate, as is done in chapter 7.Google Scholar
  3. 13.
    However, power utility alone is not sufficient for this general finding. See Wallmeier/ Zainhofer (2007) for a review of life cycle models with power utility that imply different age-equity patterns.Google Scholar

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© Gabler | GWV Fachverlage GmbH, Wiesbaden 2008

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