Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
9555904 | Journal of Economic Dynamics and Control | 2005 | 25 Pages |
Abstract
We derive closed-form solutions to asset prices, consumption, and portfolio demands in a discrete time, infinite horizon, incomplete markets, multiple agent economy. The closed-form solutions are in terms of the primitives, i.e., endowments, dividend, preference parameters, and exogenous probabilities. We assume individuals have constant absolute risk aversion utility, endowments and the dividend processes follow random walks with drifts, and the shocks to these processes are normally distributed. We evaluate how changes to primitives affect the equity premium, Sharpe ratio, and risk-free interest rate. A short calibration section ensues to evaluate the model.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Stefano G. Athanasoulis,