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Practical Finance: An Approximate Solution to Lifecycle Portfolio Choice / James J. Choi, Canyao Liu, Pengcheng Liu.
- Format:
- Book
- Author/Creator:
- Choi, James J.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w34166.
- NBER working paper series no. w34166
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2025.
- Summary:
- Research on normative household financial choices almost always gives quantitative guidance in one of two forms: a simple formula for an unrealistic setting, or numerical solutions for only a few parameter sets in a realistic setting. We propose a middle-ground approach we call practical finance: analytic approximations to optimal solutions as a function of relevant parameters in realistic settings that are easily computed in a spreadsheet. We provide such an approximation for lifecycle portfolio choice with labor income. Across 5,103 parameter sets, our approximation results in welfare that is on average only 0.06% lower than that of the optimal solution.
- Notes:
- August 2025.
- Print version record
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