The portfolio choice models 31 to 35 currently solve the value iteration problem for the optimal (unconditional) risky share and then plot the value and policy functions. This is excellent! However, I am also very interested in optimal stock market participation and its corresponding value and policy function plots. Therefore, I wonder if it would be possible to create such plots or even a model where the primary focus is stock market participation rather than the risky share. (Currently, I analyse stock market participation along the life-cycle path by introducing (savings > 0) * (riskyshare > 0) into FnsToEvaluate. However, in this new model, the value iteration problem would first solve for optimal stock market participation. Subsequently, we could examine the risky share by adding it into FnsToEvaluate.)
Do you think this concept would be valuable to include as a special case or an additional model within the portfolio choice framework?
I’m not going to put it into the Intro to Life-Cycle Models (It is almost complete, I only have space for about 4 more models and I already know what I want to put in them. I feel like 50 models is enough, maybe even too many already.)
I am considering if it might be time to start an ‘Intermediate Life-Cycle Models’ containing more advanced examples (mainly because being able to just pull models “off the shelf” is very easy/handy).
I can see this being a good model for the Intermediates. Is your thought that you are planning to code this? (Happy to have any/all coauthors for such a doc) Or do you have the equations written out in which case I might code it sometime.
I feel like in the intermediate maybe the models should be calibrated/estimated to give economically reasonable outputs.
[I don’t know enough about portfolio-choice models that I am going to sit down and figure this all out myself from scratch.]
I just want to share an idea that is interesting to me and may also be of interest to others. I was thinking about an agent who, at each age, weighs the benefits and costs to decide whether it is optimal to remain a stock market participant (if he already holds stocks) or to become a stock market participant (if he currently does not hold stocks). This idea is presented, for example, in Fagereng, Gottlieb, and Guiso (2017) and Vestman (2019) (At first glance, last model seems complex, but the concept of stock market participation seems to be straightforward.).
Yes, I plan to code such problems in the future. However, at the moment, I am an AWS user and am modifying models based on your code, as I have decided to use the VFI toolkit for study. It would be a pleasure to assist you in creating an ‘Intermediate Life-Cycle Models’ document in the future. I also believe that creating such a document would be an excellent idea, as it could help many researchers.