We present the first step in a program to develop a comprehensive, unified equilibrium theory of asset and liability pricing. We give a mathematical framework for pricing insurance products in a multiperiod financial market. This framework reflects classical economic principles (like utility...

We directly construct (no hidden approximations!) the optimal consumption stream of an agent exposed to an arbitrary, uninsurable idiosyncratic risk process in the context of an incomplete market that is a generalization of the classic Constantinides and Duffie (1996). We exploit our...

In econometrics, phenomenologically modelling asset returns by an ad hoc low order polynomial in macroeconomic quantities is referred to as factor analysis. Here, we present a rational factor analysis for a weakly heterogeneous Lucas tree economy. The method is generally applicable.We show that...

We give a complete description of long horizon behavior of asset returns in economies populated by heterogeneous agents with arbitrary discount factors and risk aversions. We find that for every type of asset there is a corresponding dominant agent who determines the long run rate of return on...

We present a rigorous analysis of idiosyncratically incomplete markets with heterogeneous agents. Our model is an extension of the classic Constantinides and Duffie (1996) that, among other important differences, allows for trade.We rigorously expand asset returns in the idiosyncratic risk and...

We extend the Lucas asset pricing tree economy to a heterogeneous population. Perturbative methods are applied to explicitly calculate the second order response of returns to heterogeneity. We determine the status of various stylized facts. For example, we find that the equity premium always...

We study the existence of equilibria with endogenously complete markets in a continuous-time, heterogenous agents economy driven by a multidimensional diffusion process. Our main results show that if prices are real analytic as functions of time and the state variables of the model then a suffi-...

I introduce dynamic option trading and non-linear views into the classical portfolio selection problem. The optimal dynamic option portfolio is characterized explicitly in terms of its expected sensitivities (Greeks) and the role of the mean-variance effi cient portfolio is played by the "Greek...