| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5077087 | Insurance: Mathematics and Economics | 2012 | 9 Pages |
Abstract
⺠We examine the decisions of risky asset allocation and consumption rate in the presence of background risk. ⺠Optimal mix of risky assets will reflect an agent's risk attitude when background risk is related to investment risk. ⺠Optimal insurance will hedge investment risk and balance the growth and the volatility of consumption. ⺠The result can explain the asset allocation puzzle and the equity premium puzzle in the financial literature.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Wen-chang Lin, Jin-ray Lu,