A QUARTET OF SEMIGROUPS FOR MODEL SPECIFICATION, ROBUSTNESS, PRICES OF RISK, AND MODEL DETECTION

• 成果类型: Article
• 署名作者: Anderson, Evan W.; Hansen, Lars Peter; Sargent, Thomas J.
• 署名单位: University of North Carolina; University of North Carolina Chapel Hill; University of Chicago; New York University
• 刊物名称: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION
• ISSN/ISSBN: 1542-4766
• DOI: 10.1162/154247603322256774
• 发表日期: 2003
• 页码: 68-123
• 关键词: robust permanent income; risk-aversion; consumption; equilibrium; INVESTMENT; utility; MODEL

摘要

A representative agent fears that his model, a continuous time Markov process with jump and diffusion components, is misspecified and therefore uses robust control theory to make decisions. Under the decision maker's approximating model, cautious behavior puts adjustments for model misspecification into market prices for risk factors. We use a statistical theory of detection to quantify how much model misspecification the decision maker should fear, given his historical data record. A semigroup is a collection of objects connected by something like the law of iterated expectations. The law of iterated expectations defines the semigroup for a Markov process, while similar laws define other semigroups. Related semigroups describe (1) an approximating model; (2) a model misspecification adjustment to the continuation value in the decision maker's Bellman equation; (3) asset prices; and (4) the behavior of the model detection statistics that we use to calibrate how much robustness the decision maker prefers. Semigroups 2, 3, and 4 establish a tight link between the market price of uncertainty and a bound on the error in statistically discriminating between an approximating and a worst case model. (JEL: C00, D51, D81, E1, G12)