Pricing long-lived securities in dynamic endowment economies

• 成果类型: Article
• 署名作者: Tsai, Jerry; Wachter, Jessica A.
• 署名单位: University of Oxford; University of Pennsylvania; National Bureau of Economic Research
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2018.07.008
• 发表日期: 2018
• 页码: 848-878
• 关键词: Rare events; Jump diffusion; recursive utility

摘要

We solve for asset prices in a general affine representative-agent economy with isoelastic recursive utility and rare events. Our novel solution method is exact in two special cases: no preference for early resolution of uncertainty and elasticity of intertemporal substitution equal to one. Our results clarify model properties governed by the elasticity of intertemporal substitution, by risk aversion, and by the preference for early resolution of uncertainty. Finally, we show in a general setting that the linear relation between normal-times covariances and expected returns need not hold in a model with rare events. (C) 2018 Elsevier Inc. All rights reserved.