We extend the Lucas asset pricing tree economy to a heterogeneous population.Perturbative methods are applied to explicitly calculate the secondorder response of asset returns to heterogeneity. We discover thatthere exists a unique "best homogeneous approximation" to a weakly...

We study utility indifference pricing of claim streams with intertemporalconsumption and power (CRRA) utilities. We derive explicit formulasfor the derivatives of the utility indifference price with respect toclaims and wealth. The simple structure of these formulas is a reflectionof surprising...

We analyze an equilibrium model in which agents exposed to idiosyncraticrisk can purchase insurance policies in addition to financialassets. The price of an insurance contract depends nonlinearly on theclaims and explicitly contains safety loadings, proportional to variance.We consider random...

We prove that for any incomplete market and any concave utilityfunction the marginal propensities to consume and to save are alwayspositive. Furthermore, we introduce a class of incomplete markets thatincludes almost all well known examples of market incompleteness infinance and macroeconomics....

We solve the problem of optimal securitization for an issuer facing heterogeneous investorswith arbitrary time and risk preferences. We show that the optimal securitizationis characterized by multiple nonlinear tranches, and each investor gets a portfolio of thesetranches. In particular, when...

We study survival, price impact and portfolio impact in heterogeneouseconomies. We show that, under the equilibrium risk-neutral measure,long-run price impact is in fact equivalent to survival, whereas longrunportfolio impact is equivalent to survival under an agent-specic,wealth-forward...

This paper presents an equilibrium model in a pure exchange economywhen investors have three possible sources of heterogeneity. Investorsmay differ in their beliefs, in their level of risk aversion andin their time preference rate. We study the impact of investors heterogeneityon equilibrium...

We provide a representation for the nonmyopic optimal portfolio of an agentconsuming only at the terminal horizon when the single state variable follows ageneral diusion process and the market consists of one risky asset and a risk-freeasset. The key term of our representation is a new object...

We calculate equilibria of dynamic double-auction markets in which agents aredistinguished by their preferences and information. Over time, agents are privatelyinformed by bids and offers. Investors are segmented into groups that differ withrespect to characteristics determining information...

We study the existence of dynamic equilibria with endogenously complete markets incontinuous-time, heterogenous agents economies driven by diusion processes. Ourmain results show that under appropriate conditions on the transition density ofthe state variables, market completeness can be deduced...