Portfolio choice with correlated income growth and equity return shocks

This repository contains the Python and $\LaTeX$ code used to solve the model and typeset the paper.

Running the code

The model is solved using the endogenous gridpoints method, and uses the equiprobable discretization method for the multivariate lognormal distribution available in the HARK toolkit. Pending some changes to the tool, the version of HARK installed and used in the code is available on my fork of the HARK repository by econ-ark. To efficiently run the code, I recommend creating a fresh Python environment, and install the necessary libraries (jupyter, numpy, scipy, matplotlib, and econ-ark). Particularly, run the following command to install the appropriate version of the HARK toolkit:

pip install git+https://github.com/sidd3888/HARK.git

NOTE: These instructions are subject to change, as and when the HARK toolkit is updated.

The $\LaTeX$ code is self-sufficient, and should work with any up-to-date $\TeX$ distribution.

Files

The code used to solve the model and generated the plots in the paper are available in equity_premium.ipynb. The draft of the paper is available in the folder titled TeX, by the name correlated_shocks_equity_premium.pdf.