The Theory of Optimal Life-Cycle Theory Saving and Investing—Part I
Contributed by Boston University, Federal Reserve Bank of Boston, and the Research Foundation of CFA Institute
How much should a family save for retirement and the kids' college education, and how much insurance should they buy for health care, disability, long-term care, and other contingencies? What should a company choose as the default asset allocation for a mandatory retirement saving plan? Bodie, Treussard, and Willen believe that economic theory provides guidance for making such decisions. The modern theory of household financial planning as developed by Fisher, Modigliani, Duesenberry, Arrow, Debreu, Samuelson, Merton, and others provides the right analytical framework and key insights. Recent work has extended the theory to account for real-world problems such as borrowing and short-sale constraints, illiquid and non-tradeable assets and transactions costs. But a gap still remains between what people do and what theory says they should do—a gap the authors attribute partially to the institutional and intellectual complexity of our theoretically optimal plans. Many of these shortcomings can be addressed by innovative financial products made feasible by recent advances in financial technology. One question remains though: Will existing providers of financial services be the ones to innovate further or will new institutions be needed?
Speakers
Zvi Bodie
is professor of finance and economics at Boston University School of
Management. Previously, he served on the finance faculty at Harvard Business
School and MIT’s Sloan School of Management. Professor Bodie’s numerous
publications include Worry-Free Investing and Foundations
of Pension Finance. His textbook Investments is
used in the certification programs of the Financial Planning Association and the
Society of Actuaries, and his textbook Finance is
coauthored by Nobel Prize winning economist Robert C. Merton. Professor Bodie
holds a PhD from Massachusetts Institute of Technology.
Jonathan
Treussard is a PhD candidate in economics at Boston University. His
awards and fellowships include the Boston University Special Research Award and
the Boston University Presidential Fellowship. He holds a baccalauréat in
economic and social sciences from the Académie de Versailles, a bachelor’s
degree in economics and international studies from UCLA, and a master’s degree
in political economy from Boston University.
Paul S. Willen is a senior economist at the Federal Reserve Bank of Boston. He also serves as a faculty research fellow at the National Bureau of Economic Research. Previously, Dr. Willen was an assistant professor at the University of Chicago’s Graduate School of Business and an assistant professor in the economics department at Princeton University. He has published articles in such journals as the Journal of Public Economics and Economic Theory. Dr. Willen holds a BA in economics from Williams College and an MA, an MPhil, and a PhD in economics from Yale University.
This information is accurate as of the date of recording.
Play
Topic
- Private Wealth Management
Details
| Length: |
42min |
| Posted: |
1/28/2007 |
| Recorded On: |
10/26/2006 |
| CE Credits: |
1 CE |
| Formats: |
|
Price (USD)
| Members: |
FREE |
| CFA Program Candidates: |
FREE |
| Standard Rate: |
FREE |
Related Links
Human Capital, Asset Allocation, and Life Insurance
Financial Analysts Journal