Journal articles
Recent publications and highlights
Management Science, 70(3), 1970-1991, 2024. With Linda Sandris Larsen, Rikke Sejer Nielsen, Jesper Rangvid.
Using a unique Danish data set, we show that young and old households are more likely to use IO mortgages compared to middle-aged households. Young households use IO mortgages because they expect higher future income, old households because IO mortgages allow them to circumvent an otherwise binding liquidity constraint. We also examine how households with IO mortgages differ from households with repayment mortgages in terms of leverage, debt and asset composition, and pension contributions.
Journal of Financial and Quantitative Analysis, 58(8): 3420-3449, 2023. With Linda Sandris Larsen.
In a rich life-cycle model, we show that well-designed mandatory pension plans significantly improve the welfare of individuals procrastinating on savings, and even improve most rational individuals' welfare through a return tax advantage and fair annuitization. For a group of heterogeneous savers, in terms of preferences and sophistication, the best plan has contributions of 10% of income from age 30, a glidepath investment strategy, payouts following a variable lifelong annuity, and various option features. This plan generates an average welfare gain of $175,000 per individual.
Journal of Banking and Finance, 138, article no. 106428, 2022. With Holger Kraft, Farina Weiss
We show that the standard representation of the bequest motive in finite-horizon, recursive utility maximization problems leads to perverse results, and we introduce a superior representation. Numerical examples illustrate the pitfalls using the traditional specification and clarifies how the bequest preference affects optimal decisions and the life-cycle patterns of consumption and wealth. We show that the typical utility representation for a unit EIS actually assumes a strong bequest preference.
Review of Finance, 22(5): 1737-1762, 2018 (Internet Appendix). With Holger Kraft, Sebastian Wagner.
Habit formation for housing consumption explains why young households invest little in stocks, why the housing expenditure share is age- and wealth-dependent, why non-housing consumption is more sensitive to wealth and income shocks than housing consumption, and why non-housing consumption is hump-shaped over life.
Journal of Accounting Research, 52(3): 703-732, 2014. With Christian Riis Flor, Hans Frimor.
A compensation package of stocks and options can be near-optimal in providing incentives for both effort and risky investments. Capping pay can be important to avoid excessively risky investments.
Management Science, 59(2): 485-503, 2013 (Online Appendix). With Björn Bick, Holger Kraft.
New efficient numerical method for life-cycle consumption-portfolio problems. Combines the abstract idea of artificial markets (Cvitanic-Karatzas), closed-form solutions in affine or quadratic models, straightforward Monte Carlo simulation, and a standard iterative optimization routine. Upper bound on numerical error.
Journal of Financial Economics, 96(3): 433-462, 2010. With Carsten Sørensen.
Labor income growth varies over the business cycle and thus with the interest rate level. The slope of this relation is crucial for optimal stock/bond/cash allocation through life. PSID data show substantial variation across individuals in this slope.
Other articles
- Solving life-cycle problems with biometric risk by artificial insurance markets, Scandinavian Actuarial Journal, 4, 307-327, 2022. With Christoph Hambel, Holger Kraft.
- A mean-variance benchmark for household portfolios over the life cycle, Journal of Banking and Finance, 116, article no. 105833, 2020.
Hedging recessions, Journal of Economic Dynamics and Control, 107, article no. 103715, 2019. With Nicole Branger, Linda Sandris Larsen.
Predictors and portfolios over the life cycle, Journal of Banking and Finance, 100: 1-27, 2019. With Holger Kraft, Farina Weiss.
Consumption habits and humps, Economic Theory, 64(2): 305-330, 2017. With Holger Kraft, Frank Seifried, Sebastian Wagner.
Portfolio management with stochastic interest rates and inflation ambiguity, Annals of Finance, 10(3): 419-455, 2014 . With Alexey Rubtsov.
Asset allocation over the life cycle: How much do taxes matter?, Journal of Economic Dynamics and Control, 37(11): 2217-2240, 2013. With Marcel Fischer, Holger Kraft.
Robust portfolio choice with ambiguity and learning about return predictability, Journal of Banking and Finance, 37(5): 1397-1411, 2013. With Nicole Branger, Linda Sandris Larsen.
Equilibrium in securities markets with heterogeneous agents and unspanned income risk. Journal of Economic Theory, 147(3): 1035-1063, 2012. With Peter Ove Christensen, Kasper Larsen.
The costs of suboptimal dynamic asset allocation: General results and applications to interest rate risk, stock volatility risk, and growth/value tilts, Journal of Economic Dynamics and Control, 36(2): 266-293, 2012. With Linda Sandris Larsen.
Optimal housing, consumption, and investment decisions over the life cycle. Management Science, 57(6): 1025-1041, 2011 (Online appendix). With Holger Kraft.
Portfolio and consumption choice with stochastic investment opportunities and habit formation in preferences, Journal of Economic Dynamics and Control, 32(11): 3560-3589, 2008
Bond durations: Corporates vs. Treasuries, Journal of Banking and Finance, 31(12): 3720-3741, 2007. With Holger Kraft.
Dynamic asset allocation under mean-reverting returns, stochastic interest rates and inflation uncertainty, International Review of Economics & Finance, 13(2): 141-166, 2004. With Carsten Sørensen, Tina N. Vinther.
Optimal consumption and investment strategies with stochastic interest rates, Journal of Banking and Finance, 28(8): 1987-2013, 2004. With Carsten Sørensen.
The Markov chain approximation approach for numerical solution of stochastic control problems: Experiences from Merton's problem, Applied Mathematics and Computation, 136(1): 47-77, 2003.
Optimal consumption and investment strategies with a perishable and an indivisible durable consumption good, Journal of Economic Dynamics and Control, 28(2): 209-253, 2003. With Anders Damgaard, Brian Fuglsbjerg.
Price bounds on bond options, swaptions, caps, and floors assuming only non-negative interest rates, International Review of Economics & Finance, 11(4): 333-345, 2002.
Optimal consumption/investment policies with undiversifiable income risk and liquidity constraints, Journal of Economic Dynamics and Control, 24(9): 1315-1343, 2000.
Stochastic duration and fast coupon bond option pricing in multi-factor models, Review of Derivatives Research, 3(2): 157-181, 1999.
The valuation of contingent claims under portfolio constraints: Reservation buying and selling prices, European Finance Review (now: Review of Finance), 3(3): 347-388, 1999.
Articles in Danish
Nye Samfundsforudsætninger: Baggrund, niveau og konsekvenser for pensionsprognoser, Finans/invest 6: 6-14, 2018. With Jesper Rangvid.
Værdiansættelse af optioner i aflønningskontrakter, Finans/invest 4: 20-30, 2003. With Christian Riis Flor.
Skal investorer med lang investeringshorisont have større aktieandel? Finans/invest 7: 10-17, 2001. With Carsten Sørensen.