The classic Lucas asset pricing model with complete markets stresses aggregate risk and, hence, fails to investigate the impact of agents heterogeneity on the dynamics of the equilibrium quantities and measures of trading volume. In this paper, we investigate under what conditions...

Agents with heterogeneous beliefs about fundamental growth do not perfectly share risks but instead speculate with each other on the relative accuracy of their models' predictions. They face the risk that market prices move more in line with the trading models of competing agents rather than...

In general equilibrium models of financial markets, the capital asset pricing formula does not hold when agents have von Neumann-Morgenstern utility with constant relative risk aversion. In this paper we examine under which conditions on endowments and dividends the pricing formula provides a...

The general equilibrium model with incomplete asset markets provides a unified framework for many problems in finance and macroeconomics. In its simplest version with only two time periods and a single physical commodity the model is ideally suited for the study of problems in cross sectional...

In this paper we argue that in realistically calibrated two period general equilibrium models with incomplete markets CAPM-pricing provides a good benchmark for equilibrium prices even when agents are not mean-variance optimizers and returns are not normally distributed. We numerically...

This paper discusses methodological aspects of equity valuation (stock pricing) in the context of continuous-time finance. The special emphasis of this study is to provide a framework and explicit formulas for the balance-sheet itemization of the product line contributions to the welfare of the...

The implications of a context with household heterogeneity and incomplete financial markets have been mostly studied under the assumption that households own the physical capital and undertake the intertemporal investment decision. Further, firms rent capital and labor from the households to...

This paper analyses the accuracy of replicating portfolio methods in predicting asset prices. In a two-period, general equilibrium model with incomplete financial markets and heterogeneous agents, a computational study is conducted under various distributional assumptions. We focus on the price...

We analyze an equilibrium model in which agents exposed to idiosyncratic risk can purchase insurance policies in addition to financial assets. The price of an insurance contract depends nonlinearly on the claims and explicitly contains safety loadings, proportional to variance. We consider...