We study risk-sharing economies where heterogenous agents trade subject to quadratic transaction costs. The corresponding equilibrium asset prices and trading strategies are characterised by a system of nonlinear, fully-coupled forward-backward stochastic differential equations. We show that a...

In Kusuda [45], we developed equilibrium analysis in security market economy with jump-Wiener information where no finite number of securities can complete markets. Assuming approximately complete markets (Björk et al. [11] [12]) in which a continuum of bonds are traded and any contingent claim...

Economic agents are exposed to the uncertain outcomes of future events. By enabling the exchange of securities, financial markets allow agents to reallocate their exposures in more efficient and mutually convenient arrangements to reduce perceived risks. The complexity and changing nature of the...

We obtain exact necessary and sufficient conditions for existence and uniqueness of solutions of a class of homothetic recursive utility models postulated by Epstein and Zin (1989). The conditions center on a single test value with a natural economic interpretation. The test sheds light on the...

This paper presents a tractable model of non-linear dynamics of market returns using a Langevin approach.Due to non-linearity of an interaction potential, the model admits regimes of both small and large return fluctuations. Langevin dynamics are mapped onto an equivalent quantum mechanical (QM)...

Classical quantitative finance models such as the Geometric Brownian Motion or its later extensions such as local or stochastic volatility models do not make sense when seen from a physics-based perspective, as they are all equivalent to a negative mass oscillator with a noise. This paper...

This paper presents an analytically tractable and practically-oriented model of non-linear dynamics of a multi-asset market in the limit of a large number of assets. The asset price dynamics are driven by money flows into the market from external investors, and their price impact. This leads to...

We study the asset pricing implications of a general equilibrium Lucas endowment economy inhabited by two agents with habit formation preferences. Preferences are modeled either as internal or external habits. We allow for agents' heterogeneity in relative risk aversion and habit strength. We...

We explicitly solve for the aggregate asset prices in a general equilibrium Lucas endowment economy with two agents who are heterogeneous in their time-nonseparable preferences. Time-nonseparability is modeled either as internal or external habit preferences. Equilibrium quantities -- equity...

We explicitly solve for the aggregate asset pricing quantities of a general equilibrium Lucas endowment economy inhabited by two agents with habit formation preferences. Preferences are modeled either as internal or external habits. We allow for agents' heterogeneity in relative risk aversion...