entropy cost functions that better match this feature of the data and that retain key simplifying features of the Shannon …

preferences, habits, and jumps. The metrics describe the pricing kernel's dispersion (the entropy of the title) and dynamics (time … dependence, a measure of how entropy varies over different time horizons). We show how each model generates entropy and time … approximations -- clarifies the mechanisms underlying these models. It also reveals, in some cases, tension between entropy, which …

This paper develops a theory of dynamic pessimism and its impact on asset prices. Notions of time-varying pessimism … control approach of Hansen and Sargent (2001) by replacing relative entropy as a measure of discrepancy between models by the …

misspecification so small that it is difficult to detect statistically and cannot be ruled out based on economic theory. This is …