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Review of Quantitative Finance and Accounting

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26.07.2016 | Original Research

Modelling optimal asset allocation when households experience health shocks

verfasst von: Jiapeng Liu, Rui Lu, Ronghua Yi, Ting Zhang

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 1/2017

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Abstract

Health status is an important factor in household portfolio decision-making. We develop a theoretical framework to model how households make optimal asset allocation decisions in response to health risks. Our two- and three-asset models both suggest that the maximum utility is derived when households allocate a majority of their assets to human capital. When households experience acute illness shocks, their welfare and portfolio values reduce, and they need to increase their investment in human capital. When an expensive health catastrophe befalls member(s) of households, the optimal decision for asset-rich households is to undertake medical treatment, whereas for asset-poor households it is to forgo treatment. Asset-poor households in particular require public financial assistance to enable them to invest in human capital.

Vorheriger Artikel Institutional ownership stability and real earnings management

Nächster Artikel Does the requirement of an engagement partner signature improve financial analysts’ information environment in the United Kingdom?

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Titel: Modelling optimal asset allocation when households experience health shocks
verfasst von: Jiapeng Liu
Rui Lu
Ronghua Yi
Ting Zhang
Publikationsdatum: 26.07.2016
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 1/2017
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-016-0589-6

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