We establish universal bounds for asset prices in heterogeneous complete market economies with scale invariant preferences. Namely, for each agent in the economy we consider an artificial homogeneous economy, populated solely by this agent and calculate the homogeneous price of an asset in each...

We introduce a general class of incomplete markets that includes almost all well known examples of market incompleteness in finance and macroeconomics. Two concrete examples are the problem of idiosyncratic income shocks and general, diffusion driven incompleteness. For all markets in this class...

We analyze an equilibrium model in which agents exposed to idiosyncratic risk can purchase insurance policies in addition to financial assets. The price of an insurance contract depends nonlinearly on the claims and explicitly contains safety loadings, proportional to variance. We consider...

We present the first step in a program to develop a comprehensive, unified equilibrium theory of asset and liability pricing. We give a mathematical framework for pricing insurance products in a multiperiod financial market. This framework reflects classical economic principles (like utility...

We give a functional description of the space of stochastic integrals with respect to a given family of martingales, based on the notion of direct integral of Hilbert spaces. We define the multiplicity function of a filtration and show, using our Hilbert space construction, that the multiplicity...

We directly construct (no hidden approximations!) the optimal consumption stream of an agent exposed to an arbitrary, uninsurable idiosyncratic risk process in the context of an incomplete market that is a generalization of the classic Constantinides and Duffie (1996). We exploit our...

In econometrics, phenomenologically modelling asset returns by an ad hoc low order polynomial in macroeconomic quantities is referred to as factor analysis. Here, we present a rational factor analysis for a weakly heterogeneous Lucas tree economy. The method is generally applicable.We show that...

We give a complete description of long horizon behavior of asset returns in economies populated by heterogeneous agents with arbitrary discount factors and risk aversions. We find that for every type of asset there is a corresponding dominant agent who determines the long run rate of return on...

We analyze the effects of jointly heterogeneous discount factors and risk tolerances on the preferences of the conventional representative agent. We show that the risk aversion of the representative agent is monotone increasing (decreasing) with time when discount factors and risk tolerances are...

We present a rigorous analysis of idiosyncratically incomplete markets with heterogeneous agents. Our model is an extension of the classic Constantinides and Duffie (1996) that, among other important differences, allows for trade.We rigorously expand asset returns in the idiosyncratic risk and...