Abstract: Equity incentive can make the interests of companies and executives converge and solve the principal-agent problem between companies and executives to a large extent. An executive, characterized by risk aversion and hard work efficiency, can affect the company stock prices through the work-effort strategies. Incorporating inflation uncertainty into the model, it is considered that an executive invests his assets in the risk-free asset, the market portfolio, and own-company stocks for the aim of maximizing his expected utility of the terminal real wealth. First, the dynamic equation of the real wealth process is obtained by using the Itô formula. Secondly, the dynamic programming principle is used to establish the HJB equation of the real value function of the executive's optimal decision. Moreover, the analytical solutions of the HJB equation are found. Finally, the impact of inflation risk on the executive equity-based incentives and work-effort strategies are given by numerical simulations. The research in this paper shows that:in the case of exponential utility, for the long-term contracts, since equity incentive can bring long-term interests to executive, the executive can improve the level of effort and will increase the rate of the stake in personal wealth. Moreover, in this case, the executive is optimistic about the company's prospects. The inflation risks has little effect on executive optimal effort level and the proportion of stake in personal wealth. For the short-term contracts, due to the lack of long-term common interests, when the inflation risk increases, the optimal effort level of executive and the shareholding ratio of personal wealth will decline gradually.

Key words: inflation, portfolio, work effort, equity incentives, dynamic programming