How to Optimize a Financial Portfolio for a Firefighter
DOI:
https://doi.org/10.54691/bcpbm.v38i.3926Keywords:
Pension, Mean-variance, CAPM, FF3F.Abstract
How to increase the amount of pension is a major concern for many retirees. In this paper, the question of whether retirees need to buy out their pensions is examined. Two portfolios are set up and their Sharpe rates are compared under two assumptions. The purpose of the study is to effectively assist retirees in their asset allocation. In this paper, diversified assets from four different sectors were selected to construct the portfolios. Three methods, the mean-variance model, CAPM model, and FF3F model, are used in this paper for portfolio construction and comparison. Meanwhile, the performance of the portfolios was analyzed using the weighting analysis method. The results show that "Disney" has the largest share when it chooses to buy out its pension and reinvest it using the CAPM model, while "LVMH" has the largest share in all other cases. This study may be useful for retirees who are faced with the decision of whether to buy out their pensions.
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