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Optimal Early Retirement Near the Expiration of a Pension Plan

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Abstract

In a recent paper, Friedman and Shen (Finance Stoch 6: 273–302, 2002) have considered a pension plan with the option of early retirement. They showed that the financial value V of the retirement benefits is the solution of a variational inequality and have studied the associated free boundary. A description of the free boundary near maturity is given, thanks to integral equation methods. However, V is also the solution of an optimal stopping problem very close to the American option valuation problem. Comparing V to specific options, we derive an expansion of the free boundary near the expiration of the pension plan.

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Authors and Affiliations

  1. Département de Mathématiques, Université d’Évry-Val d’Essonne, Évry cedex, France

    E. Chevalier

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  1. E. Chevalier
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Correspondence to E. Chevalier.

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Chevalier, E. Optimal Early Retirement Near the Expiration of a Pension Plan. Finance Stochast. 10, 204–221 (2006). https://doi.org/10.1007/s00780-006-0003-7

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  • DOI: https://doi.org/10.1007/s00780-006-0003-7

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