In this paper, we characterize subjective probability beliefs leading to a higher equilibrium market price of risk. We establish that Abel's result on the impact of doubt on the risk premium is not correct in general; see Abel [2002. An exploration of the effects of pessimism and doubt on asset...

We consider a model in which all investment opportunities are decribed in termes of cash flows. Our investment opportunities as assumed to be very general: they don't necessarily involve two dates and are not specifically related to a market model.

The problem of fair pricing of contingent claims is well understood in the context of an arbitrage free, complete financial market, with perfect information. But in the more realistic context of an incomplete market with imperfect information, the arbitrage approach does not enable us to aobtain...

This paper deals with market models where there is no compatible positive state price density.

The aim of this paper is to analyse the impact of heterogeneous beliefs in an otherwise standard competitive complete market economy. The construction of a consensus probability belief, as well as a consensus consumer, is shown to be valid modulo an aggregation bias, which takes the form of a...

Why do investors keep different opinions even though they learn from their own failures and successes? Why do investors keep different opinions even though they observe each other and learn from their relative failures and successes? We analyze beliefs dynamics when beliefs result from a very...