We formulate a robust theory of liquidity and risk management based on two fundamental frictions: 1) the entrepreneur … significant distortions for risk-sharing, corporate investment, and consumption. With regard to concern for ambiguity aversion …, the impacts of ambiguity on risk hedging is ambiguous due to the interactions between robustness and limited commitment …

results cannot be obtained by assuming higher risk aversion …

, equity premium, variance risk premium, and risk-neutral entropy) requires a minor deviation from expected utility theory and … expected utility preferences and ambiguity aversion. Within that framework, matching four market moments (the risk-free rate … generate a common mechanism underlying return predictability of the variance risk premium, market crash probability, and market …