Traditional life-cycle models conclude that individuals should be fully invested in stocks when young -- in stark contrast to observed stock holdings -- and then gradually replace stocks with bonds as retirement is approaching. We show that a carefully specified and calibrated model of...

We analyze the portfolio planning problem of an ambiguity averse investor. The stock follows a jump-diffusion process, and there is ambiguity about the drift of the stock and the intensity of jumps. The consequences of ambiguity with respect to jump and diffusion risk are by no means the same....

Using a unique data set with detailed information on Danish households and their mortgages, we show that young and old households are more likely to use IO mortgages compared to middle-aged households. Young households use IO mortgages to postpone repayment to a period with higher income, old...

In a rich, calibrated life-cycle model, we show that well-designed mandatory pension plans significantly improve the welfare of individuals procrastinating on savings or not investing in stocks, and even improve rational individuals' welfare through a return tax advantage and fair annuitization....

The recent theoretical asset allocation literature has derived optimal dynamic investment strategies in various advanced models of asset returns. But how sensitive is investor welfare to deviations from the theoretically optimal strategy? Will unsophisticated investors do almost as well as...