Optimal Portfolio Choice over the Life Cycle with Epstein-Zin-Weil Preferences and G-and-H Distribution

Jialun Li, Kent Smetters

NBER Retirement Research Center Paper No. NB 10-15
Issued in September 2010

In this paper we develop a lifecycle model to solve numerically for the optimal consumption and portfolio rules of households who face uninsurable labor income uncertainty, mortality risk, and borrowing constraints. We incorporate generalized utility forms (Epstein-ZinWeil utility) and generalized stock return shock distribution (g-and-h distribution). The flexibility of our model enables us to match the empirical stock/bond ratio and wealth/income ratio.

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