A closed-form solution to the continuous-time consumption model with endogenous labor income
In this paper, we study an intertemporal maximization problem of an infinitely-lived individual who faces both labor income and asset return uncertainty. Given the growth rate of wage, the uncertainty of labor income is caused by the stochastic labor supply which is to be determined upon the available market information. Closed forms of consumption, labor supply and portfolio are obtained analytically by means of the martingale method. The Euler equation under uncertainty is established.
|Date of creation:||Sep 2007|
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- Chang,Fwu-Ranq, 2004.
"Stochastic Optimization in Continuous Time,"
Cambridge University Press, number 9780521834063, june. pag.
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Discussion Paper Series In Economics And Econometrics
9907, Economics Division, School of Social Sciences, University of Southampton.
- Toche, Patrick, 2005. "A tractable model of precautionary saving in continuous time," Economics Letters, Elsevier, vol. 87(2), pages 267-272, May.
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