Labor Supply Flexibility And Portfolio Selection In A Life Cycle Model Based On Inflation And Liquidity Risk

Life cycle model is a basic model to study the impact of flexibility of labor supply on optimal consumption investment strategy.Based on this model,inflation and liquidity level will be introduced simultaneously to study the impact of these three factors on optimal consumption investment portfolio.Firstly,We describe the concept of life cycle model,and then we get the Hamilton Jacobi Bellman(HJB)equation.Next,we deduce its analytical solution,and obtain the optimal strategic solution of consumption investment portfolio.Finally,we do some numerical examples to illustrate the influence of these three factors on portfolio selection.The results show that:(1)in terms of environmental factors,the impact of inflation and liquidity on the optimal consumption portfolio cannot be ignored,and the model considering only one of them is not perfect;(2)In terms of labor supply,generally speaking,the case with flexible labor supply time is better than the case with fixed labor supply time;(3)the flexibility of labor supply has a profound impact on the proportion of human capital,financial wealth and venture capital;(4)in the age of labor,the proportion of young people’s human capital,financial assets and investment in venture capital is always higher than that of the elderly.Compared with other literatures,the innovation of this paper lies in:(1)further developing the basic life cycle model,and finding the value function and optimal strategy based on the newly constructed utility function;(2)solving the optimization problem considering both inflation and liquidity factors;(3)innovation of the quantitative method of liquidity level.Because of the duality of liquidity,different from most other studies,in this paper,liquidity is introduced into utility function to build a continuous time asset return dynamic model framework.