This work develops an external habit model of the equity premium subject to long run risk in continuous time. The solution to this model is an analytic price-dividend function of the surplus consumption ratio and the long run risk variable. As a result, the equity premium can be accurately...

The analytic method of Chen, Cosimano, and Himonas (CCH 2009) is extended to prove that the continuous time version of the long run risk model of Bansal and Yaron (2004) has an analytic solution. The long run risk model is dependent on the recursive utility introduced by Duffie and Epstein...

This chapter discusses computational methods for approximating portfolio and asset pricing problems. Formulation of these problems is usually specified along with components, preferences, payoffs, etc., that are analytic functions. This implies that the solutions to these problems acquire this...