Chien, YiLi; Lustig, Hanno - In: Review of Financial Studies 23 (2010) 4, pp. 1596-1650
We introduce limited liability in a model with a continuum of ex ante identical agents who face aggregate and idiosyncratic income risk. These agents can trade a complete menu of contingent claims, but they cannot commit to honor their promises, and their shares in a Lucas tree serve as...