We study the existence of equilibria with endogenously complete markets in a continuous-time, heterogenous agents economy driven by a multidimensional diffusion process. Our main results show that if prices are real analytic as functions of time and the state variables of the model then a suffi-...

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...

We extend the Lucas asset pricing tree economy to a heterogeneous population. Perturbative methods are applied to explicitly calculate the second order response of returns to heterogeneity. We determine the status of various stylized facts. For example, we find that the equity premium always...

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 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 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 develop a model of investment, payout, and nancing policies in which rms face uncertainty regarding their ability to raise funds and have to search for investors when in need of capital. We show that capital supply uncertainty leads rms to value nancial slack and to adjust their policies to...