With reference to funds established for the benefits of the public at large, a university endowment, or other similar sovereign wealth fund, we demonstrate that the optimal extraction rate from the fund is significantly smaller than the expected real rate of return on the underlying fund. We...

In many countries, traditional life insurance products include a fixed percentage guarantee on each year's return. This article presents a model for the valuation of life insurance contracts including a guaranteed minimum return. The model is based on the notion of no arbitrage opportunities...

Consider a traditional life insurance contract paid with a single premium. In addition to mortality factors, the relationship between the fixed amount of benefit and the single premium depends on the interest rate (calculation rate). The calculation rate can be interpreted as the average rate...

This paper presents a valuation theory of futures contracts and derivatives on such contracts when the underlying delivery value follows a stochastic process containing jumps of random claim sizes at random time points of accident occurrence. Applications of the theory are made on insurance...

We analyze optimal consumption, including pensions, during the life time of a consumer using the life cycle model, when the consumer has recursive utility. The model framework is that of continuous-time with diffusion driven uncertainty. The relationship between substitution of consumption and...

The single auction equilibrium of Kyle's (1985) is studied, in which market makers are not fiduciaries. They have some market power which they utilize to set the price to their advantage, resulting in positive expected profits. This has several implications for the equilibrium, the most...

We study a rational expectations' competitive equilibrium in a production economy, i.e., a system of prices at which firms' profit maximizing production decisions and individuals' preferred affordable consumption choices equate supply and demand in every market. We derive the equilibrium price...

We study the Epstein-Zin model with recursive utility. Recognizing that recursive preferences implies that the underlying model is not Markovian, we use methods not depending upon the Markov property to solve the model. We work with the returns directly, which we approximate by Taylor series...

The paper investigates the effects of deviations from normality on the estimates of risk premiums and the real equilibrium, short-term interest rate in the conventional rational expectations equilibrium model of Lucas (1978). We consider a time-continuous approach, where both the aggregate...

We derive the equilibrium interest rate and risk premiums using recursive utility for jump-diffusions. Compared to to the continuous version, including jumps allows for a separate risk aversion related to jump size risk in addition to risk aversion related to the continuous part. The jump part...