Asset prices with locally constrained-entropy recursive multiple-priors utility

Control problems with recursive multiple-priors utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with locally-constrained entropy RMPU (LCE-RMPU) that is tractable even in the p...

Full description

Saved in:
Bibliographic Details
Published inJournal of economic dynamics & control Vol. 32; no. 11; pp. 3695 - 3717
Main Authors Sbuelz, Alessandro, Trojani, Fabio
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.11.2008
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Economic Dynamics and Control
Subjects
Asset pricing
Asset pricing General equilibrium Model misspecification Recursive multiple-priors utility Locally constrained entropy
Entropy
Financial engineering
General economic equilibrium
General equilibrium
Locally constrained entropy
Mathematical finance
Model misspecification
Recursive multiple-priors utility
Securities prices
Stochastic models
Studies
Utility functions
Recursive multiple-priors utility
Locally constrained entropy
G11
G12
Model misspecification
Asset pricing
General equilibrium
Online AccessGet full text

Cover

More Information
Summary:Control problems with recursive multiple-priors utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with locally-constrained entropy RMPU (LCE-RMPU) that is tractable even in the presence of a stochastic opportunity set and incomplete markets. We find that time variation in the LCE-based ambiguity set is able to capture important features of consumption and asset markets data.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2008.03.002