Munk, Claus; Sørensen, Carsten - In: Journal of Financial Economics 96 (2010) 3, pp. 433-462
We solve for optimal portfolios when interest rates and labor income are stochastic with the expected income growth being affine in the short-term interest rate in order to encompass business cycle variations in wages. Our calibration based on the Panel Study of Income Dynamics (PSID) data...