Decomposition of Health Cost and Modeling of Asset Allocation

People spend a lot of money to keep healthy. So health problem has affected investors’ earnings and their decision of asset allocation. By means of thinking about the relative effect of health problem this paper proposed an optimization model and solved it in single period. Meanwhile an empirical demonstration about the relationship between life expectancy and social cost was adopted. After discussion we believe that health factors may increase the volatility of wage income, thereby reduce investors’ allocation ratio on risk asset; but when wage income risk is independent on investment return, investors will increase investment ratio. The main innovation of this paper is that decomposing the cost of health, building a model of asset allocation by the way of health factors and solving it in single period.