Dynamic stochastic general equilibrium models with ex-post heterogeneity due to idiosyncratic risk have to be solved … space due to aggregate risk. Existing global solution methods often assume bounded rationality in terms of a parametric law … the rational expectations equilibrium. Economically, I find that higher levels of idiosyncratic risk sharing lead to …

possible at time T if the initial capital is not sufficient to hedge xc. This introduces a new risk into the market and our … main aim is to minimize this shortfall risk by making use of results from bsde theory. …