Essays in life-cycle planning and risk management in the presence of risky human capital.

摘要

The possibility that one's labor income fluctuates over time, i.e. human capital risk, is arguably the largest source of uncertainty faced by most adult individuals. This dissertation addresses optimal career risk management and retirement planning from the perspective of modern finance.;In Chapter 1, we develop a model emphasizing the ability to change occupations as a means to manage human capital risk. The individual may change occupations at most once over her working years, and her decision to exercise her career option entails a deterministic transition phase. Our methodology employs some of the most advanced techniques in contingent claims analysis to ascertain the value of this option. From the perspective of finance theory, the individual's career option allows her to exchange a dividend-paying asset of low value (employment in her initial occupation) for one of high value (employment in the alternative occupation). The ability to obtain the latter asset at below market prices is the source of the option's value, which is as high as 2 1/2 years' worth of initial labor earnings, increasing human capital wealth by nearly 8 percent. This chapter also examines the effect of labor earnings volatility on the optimal choice of one's initial occupation. It is shown that starting out in the riskier occupation is optimal only if earnings volatility is high and switching costs low.;In Chapter 2, we study repeated occupational mobility. Exploiting an infinite-horizon formulation, the model permits pseudo closed-form solutions. Because the individual loses the ability to effectively change occupations over time as her health status and overall capacities deteriorate, the model mirrors the most robust fact about individual career choice: the average number of occupation changes declines steadily over time. We demonstrate that repeated career options are significantly more valuable than their once-in-a-lifetime counterparts, gaining 21 percent in value at the calibration benchmark.;In Chapter 3, we analyze target-date retirement funds and conclude that retirement investment vehicles should alter portfolio holdings not only based on the individual's expected retirement date but should also account for labor income risk along occupational lines.