We introduce ambiguity about the variance of the risky asset's return in the model of Chacko and Viceira (2005) for dynamic consumption and portfolio choice with stochastic variance. We find that, with investors being able to update their portfolio continuously (as a function of the...

Literature on dynamic portfolio choice has been finding that volatility risk has low impact on portfolio choice. For example, using long-run U.S. data, Chacko and Viceira (2005) found that intertemporal hedging demand (required by investors for protection against adverse changes in volatility)...

In an economy with private information, we introduce the notion of objects of choice as lists of bundles out of which the market selects one for delivery. This leads to an extension of the model of Arrow-Debreu that is used to study ex-ante trade with private state verification. The model does...

We consider a version of the intertemporal general equilibrium model of Cox et al. (1985a) with a single production process and two correlated state variables. It is assumed that only one of them, Y2, has shocks correlated with those of the economy's output rate and, simultaneously, that the...

We derive a closed-form solution for the price of a European call option in the presence of ambiguity about the stochastic process that determines the variance of the underlying asset's return. The option pricing formula of Heston (1993) is a particular case of ours, corresponding to the case in...