We study a dynamic portfolio selection problem in which an agent trades a stock and a risk-free asset with the objective of maximizing the rank-dependent utility of her wealth at the terminal time of the investment horizon. Due to time inconsistency, we consider three types of agents,...

Simultaneous research efforts made in 1962 by Gary Becker and Vernon Smith proved that neither rationality nor complete information are necessary market conditions to reach a competitive equilibrium. Although behavioral extensions to this framework have shown significant progress towards a...

We derive the equilibrium interest rate and risk premiums using recursive utility for jump-diffusions. Compared to to the continuous version, including jumps allows for a separate risk aversion related to jump size risk in addition to risk aversion related to the continuous part. We also...

We study the Epstein-Zin model with recursive utility. Recognizing that recursive preferences implies that the underlying model is not Markovian, we use methods not depending upon the Markov property to solve the model. We work with the returns directly, which we approximate by Taylor series...

In a general equilibrium model with a continuum of traders and bounded aggregate endowment, I investigate the Market Selection Hypothesis that markets favor traders with accurate beliefs. Contrary to known results for economies with (only) finitely many traders, I find that risk attitudes affect...

We study general equilibrium asset prices in a multi-period endowment economy when agents' risk aversion is allowed to depend on the maturity of the risk. We find horizon-dependent riskaversion preferences generate a decreasing term structure of risk premia if and only if volatility is...

We study a rational expectations' competitive equilibrium in a production economy, i.e., a system of prices at which firms' profit maximizing production decisions and individuals' preferred affordable consumption choices equate supply and demand in every market. We derive the equilibrium price...

In RBC models, “disaster risk shocks” reproduce countercyclical risk premia but generate an increase in consumption along the recession and asset price fall, through their effects on agents' preferences (Gourio, 2012). This paper offers a solution to this puzzle by developing a New Keynesian...

We derive the equilibrium interest rate and risk premiums using recursive utility for jump-diffusions. Compared to to the continuous version, including jumps allows for a separate risk aversion related to jump size risk in addition to risk aversion related to the continuous part. The jump part...

This paper studies the role of inflation in the determination of financial asset prices. We estimate an Intertemporal Capital Asset Pricing Model à la Merton (1973), with inflation as an independent source of risk, for France and Germany. Our study also allows us to evaluate how the different...