This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...

In this paper we solve an intertemporal portfolio problem with correlation risk, using a new approach for the simultaneous modeling of stochastic correlation and volatility. The solutions of the model are in closed form and include an optimal portfolio demand for hedging correlation risk. We...

In a continuous-time, pure exchange economy on a finite horizon financial agents display ambiguity aversion for a neighborhood of indistinguishable model specifications that are constrained in their relative entropy from a given reference model. We characterize equilibrium optimal consumption-...

We develop a continuous time general equilibrium yield curve model under ambiguity aversion. A moderate level of ‘aggregate ambiguity’ affects significantly the term structure and can drive the prices of common interest rate derivatives toward the patterns observed in fixed income markets....

This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...