Merton model Sample Clauses

Merton model. ‌ In this section, we will start by explaining the assumptions with respect to financial markets (Subsection 2.1.1), preferences (Subsection 2.1.2) and the labor market (Subsection 2.1.3). In Subsection 2.1.4, we for- mulate the life cycle optimization problem that solves for the optimal consumption pattern, hence prescribes an optimal saving decision and solves for the optimal asset allocation over the life cycle. In Subsection 2.1.5, expressions for optimal consumption and optimal asset allocation in this model will be presented. Additional formulas presented in Subsection 2.1.5 are needed for the purpose of this thesis and were derived in the context of the Merton model. The notation in this section will be (to a large extent) in line with the notation used in Bovenberg, Xxxxxx, Nijman, and Teulings (2007) [12].
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