We study consumption-portfolio and asset pricing frameworks with recursive preferences and unspanned risk. We show that in both cases, portfolio choice and asset pricing, the value function of the investor/representative agent can be characterized by a specific semilinear partial differential...

While it is common knowledge that portfolio separation in a continuous-time lognormal market is due to the basic properties of the Gaussian distribution, the usual textbook exposition relies on dynamic programming and thus Itô stochastic calculus and the appropriate regularity conditions. This...

We study continuous-time optimal consumption and investment with Epstein-Zin recursive preferences in incomplete markets. We develop a novel approach that rigorously constructs the solution of the associated Hamilton-Jacobi-Bellman equation by a fixed point argument and makes it possible to...

This paper tests the effect of background risk on university endowment portfolios, where background risk is defined as the volatility of universities' nonfinancial income. The results show that higher background risk is associated with lower portfolio standard deviations. Universities with...

We study consumption-portfolio and asset pricing frameworks with recursive preferences and unspanned risk. We show that in both cases, portfolio choice and asset pricing, the value function of the investor/representative agent can be characterized by a specific semilinear partial differential...

The purpose of this paper is to analyze endogenous asset innovation by an entrepreneurial exchange owner in a general equilibrium model of incomplete security markets with financial transaction fees. A monopolistic market maker has the technology to introduce a new option into the economy and...

There are a wide variety of theoretical general equilibrium models with incomplete security markets. In this paper we give a general recipe for using homotopy algorithm to compute equilibria in these models. In many models, taxes, transaction-costs or other market frictions introduce the...

This paper studies the effects of financial integration on macroeconomic volatility and welfare. We examine a two-sector (tradable and nontradable), twocountry world economy with production in which both stocks and bonds are traded internationally, but markets are incomplete. The effects of...

We develop a dynamic multi-region model, with fluctuating regional house prices, where an owner-occupied household’s location choice depends on its current wealth and its current type and involves both consumption and investment considerations. The relative strength of the consumption motive...

Pension systems often entail some compulsory saving over which individuals have some degree of choice in terms of the pension plan in which to invest. We analyse whether the choice between alternative plans is affected by the presence of liquidity constraints during working life and we prove...