An Asset Allocation Model with Social Insurance

Every person or family will face a series of important expenses. In order to avoid shocks from these expenses for individuals or families, people will probably have precautionary saving incentives which influence their strategic asset allocation. This paper reviews domestic and foreign literatures about asset allocation and precautionary saving. This paper proposes a new asset allocation model framework including both social insurance and precautionary saving. At the same time this paper gets two-period model from previous model framework and obtains analytical solution. The main innovations of the paper are combining social insurance and precautionary saving with asset allocation model, and explaining the significance of analytical solution.