CONSUMPTION-LEISURE CHOICE WITH STOCHASTIC INCOME FLOW

This paper investigates the portfolio selection problem with flexible labor choice and stochastic income flow where the unit wage flow is governed by a stochastic process. The agent optimally chooses consumption, investment, and labor supply. We derive the closed-form solution by applying a martingale method even with the stochastic income flow.

1. Introduction

2. Basic Model

3. Problem

4. Solution

5. Optimal Controls

6. Conclusion

References

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