Optimal Real Consumption and Asset Allocation for a HARA Investor with Labour Income

Francesco Menoncin ()

No 2003015, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: In this paper, we take into account a very general setting with : (i) a set of stochastic investment opportunities, (ii) a set of risky assets, (iii) a riskless asset paying a stochastic interest rate, (iv) a stochastic inflation risk, (v) stochastic labor income , and (vi) HARA preferences. We compute a quasi-explicit solution for both the optimal consumption and asset allocation. This solution is based on two changes in the probability measure. We also show that the investor behaves as if he could rely on his wealth augmented by the expected value of all his “forward real labor incomes”

Keywords: Asset Allocation; Inflation risk; Stochastic labour income; Stochastic investment opportunities; Feynman-Kac theorem (search for similar items in EconPapers)
JEL-codes: C61 G11 (search for similar items in EconPapers)
Pages: 30
Date: 2003-11-01
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2003015

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