Abstract
We examine a class of Brownian based models which
produce tractable incomplete equilibria. The models are based
on finitely many investors with heterogeneous exponential utilities
over intermediate consumption who receive partially unspanned
income. The investors can trade continuously on a
finite time interval in a money market account as well as a
risky security. Besides establishing the existence of an equilibrium,
our main result shows that the resulting equilibrium
can display a lower risk-free rate and a higher risk premium
relative to the usual Pareto efficient equilibrium in complete
markets. Consequently, our model can simultaneously help
explaining the risk-free rate and equity premium puzzles.
produce tractable incomplete equilibria. The models are based
on finitely many investors with heterogeneous exponential utilities
over intermediate consumption who receive partially unspanned
income. The investors can trade continuously on a
finite time interval in a money market account as well as a
risky security. Besides establishing the existence of an equilibrium,
our main result shows that the resulting equilibrium
can display a lower risk-free rate and a higher risk premium
relative to the usual Pareto efficient equilibrium in complete
markets. Consequently, our model can simultaneously help
explaining the risk-free rate and equity premium puzzles.
| Originalsprog | Engelsk |
|---|---|
| Udgivelsessted | www |
| Udgiver | ArXiv |
| Antal sider | 30 |
| Status | Udgivet - 2010 |
| Udgivet eksternt | Ja |