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- Title
An Options Approach to Individual Achievement of Optimal Total Precautionary Savings Levels.
- Authors
Cain, Christopher L.; Benefield, Justin D.
- Abstract
Prior literature uses option valuation techniques to determine the optimal strategy for individuals deciding whether to liquidate savings for debt repayment. Savings sufficient for three months of income replacement is assumed and utilized in subsequent analyses. Higher savings levels have also been considered but in increments of three months' of income. Prior literature addresses neither the choice of three months worth of income as optimal nor the evaluation of incremental savings below the threemonth threshold. The current paper extends the option valuation of savings to include choice of emergency fund size and decision making en route to accumulating those funds.
- Subjects
OPTIONS (Finance); VALUATION; REPAYMENTS; DEBT; LIQUIDATION; DECISION making; SAVINGS accounts
- Publication
Journal of Financial Service Professionals, 2011, Vol 65, Issue 4, p67
- ISSN
1537-1816
- Publication type
Article