Robust general equilibrium under stochastic volatility model
This paper studies the implications of model uncertainty under stochastic volatility model for equilibrium asset pricing. We derive the equilibrium equity premium and risk-free rate in a pure-exchange economy with one representative agent who is averse not only to risk but also to model uncertainty. The results show that robustness increases the equilibrium equity premium while lowers the risk-free rate.
Year of publication: |
2010
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Authors: | Xu, Weidong ; Wu, Chongfeng ; Li, Hongyi |
Published in: |
Finance Research Letters. - Elsevier, ISSN 1544-6123. - Vol. 7.2010, 4, p. 224-231
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Publisher: |
Elsevier |
Keywords: | General equilibrium Robust control Stochastic volatility model Equity premium |
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