演講摘要 : The aim of this paper is to identify the role of background risk and insurance in the decision making process of risky asset allocation and consumption rate in a continuous-time paradigm. Because background risk is not possible to be hedged in the financial market and may be interdependent with financial assets, we show how insurance can be used to mitigate the impact from background risk and how to form a hedging demand with respect to financial risk. We show a more rigorous condition for the mutual fund separation theorem. In our model, the optimal holding ratio of risky assets is not necessary to be independent of risk attitude as predicted by most previous studies. Moreover, the resulting consumption path is much smoother than that without insurance. We conclude that our findings may be used to explain the well-known “equity premium puzzle” as well as the “asset allocation puzzle” in the financial literature.
