Authors : Bright O. Osu, Godswill U. Achi and Chigoziem A. Emereuwa
Abstract: This study examines a stochastic effect of the government policy on the income of individuals to explain the aggregate income of individuals whose salaries are increased and invested when received. A single (distribution) probability mass function which accommodates both the risk-free and risky income is presented herein. The result confirms that the aggregate income (wealth) of an individual is distributed according to power law. This distribution is used to solve the Black-scholes PDE. It is discovered that α (the measure exponent of the power law) lies between (1.2, 2.46) with the empirical data. We further used this distribution as a special (case) utility function to represent explicitly the optimal policies when there are minimum capital requirement.
Bright O. Osu, Godswill U. Achi and Chigoziem A. Emereuwa, 2011. Stochastic (Multiplicative) Effect of Government Policy on the Income of Individuals. Journal of Modern Mathematics and Statistics, 5: 3-8.