Integrated Risk Model in Household Life Cycle
Opis
Spis treści
Autor: Krzysztof Jajuga, Łukasz Feldman, Radosław Pietrzyk, Paweł Rokita
ISBN: 978-83-7695-528-5
Rok wydania: 2015
Liczba stron: 296
Format: E-book
Wersja elektroniczna: IBUK
Introduction 9
1 Financial planning in a household 13
1.1 Basic problems of personal finance 14
1.2 Financial planning in personal finance 19
1.3 Decision making by individuals and households 27
1.3.1 Needs and preferences of household’s members 27
1.3.2 Decision making process 30
1.3.3 Utility theory 32
1.3.4 Utility-based choice theory 36
1.4 Intertemporal choice and consumption models 42
2 Risk in personal finance 53
2.1 Risk – basic concepts 53
2.2 The role of risk in household financial planning 60
2.3 Types of risk and risk factors 67
2.3.1 Life-length risk 74
2.3.2 Risk of investments and financing 77
2.3.3 Income risk 80
2.3.4 Risk of events (insurance-like events) 82
2.3.5 Risk of goal realization 83
2.3.6 Operational risk of plan management (the risk of plan implementation) 86
2.3.7 Model risk 89
2.4 Measurement of risk 91
2.4.1 Risk measures based on the statistical distribution of risk variable 92
2.4.2 Risk measures based on the dependence on risk factors 99
2.4.3 Risk measurement for a discrete variable 99
2.4.4 Risk measurement for the time variable 101
2.4.5 Extreme risk measurement 103
2.4.6 Risk measurement in a multivariate case 105
2.4.7 Concluding remarks 107
2.5 Steering of risk 108
3 Household – definition, preferences and goals 115
3.1 Definition of the household 116
3.2 Financial goals of households 118
3.2.1 Type I (Child) 124
3.2.2 Type II (Retirement) 125
3.2.3 Type III (House) 126
3.2.4 Type IV (Endowment) 128
3.2.5 Type V (Bequest) 129
3.3 Stochastic goals in household financial planning 130
3.3.1 Time and magnitude distributions 133
3.3.2 Child’s birth moment 134
3.3.3 House value and purchase time 136
3.3.4 Distribution of household end (for the moment of bequest goal realization) 137
3.3.5 Distribution of the survival scenario 138
3.4 Financing of the goals 138
3.4.1 Pre-financing 139
3.4.2 Post-financing 140
3.4.3 Remarks on pre- and post-financing cash flows 142
3.4.4 Contingency financing 142
3.5 Household preferences 144
3.5.1 Utility function and risk aversion 144
3.5.2 The bequest motive 146
3.5.3 Multiple goals 150
3.5.4 Preferences in the model 153
4 Household financial planning model 160
4.1 General concepts and assumptions 161
4.1.1 Main financial categories 161
4.1.2 Critical dates 166
4.1.3 Retirement investment schemes 168
4.1.4 The role of the bequest motive 175
4.2 Life-length risk aversion in the model 176
4.3 A model with the retirement goal only 180
4.4 Extension to include other financial goals 189
4.4.1 Augmenting the model by the stochastic child’s birth time 189
4.4.2 Type III goal in the model 191
4.4.3 Including Type III goal using quantiles of real estate price distribution 193
4.5 Financing goals and risk of financing 195
5 Including risk in the household financial planning model 197
5.1 Considered types of risk and the way of incorporating them into the model 197
5.2 Integrated measures of risk 203
5.2.1 Residual Wealth at Risk (RWaR) 206
5.2.2 Residual Wealth Volatility (RWV) 208
5.2.3 Residual Wealth Aspiration Level (RWAL) 209
5.2.4 Lifetime Cumulated Net Cash Flow at Risk (LCNCFaR, LCaR). 210
5.2.5 Incremental shortfall (ISh) 213
5.2.6 Shortfall Scenario Probability (ShSP) 214
5.2.7 Household Default Probability (HDP) 215
5.3 Managing plan under risk 218
6 The model at work – numerical examples and analysis of model properties 223
6.1 The width of the range of concern and plan performance under life-length risk 225
6.2 The role of the consumption preference and the bequest motive – numerical example 239
6.3 Life-length risk sharing within a couple 246
6.4 Risk of investment in the model – numerical examples 261
6.5 Summary of numerical examples 281
Conclusions 284
References 286
List of figures 293
List of tables 295