We analyze the impact of risk and ambiguity aversion using a lifecycle recursive utility model. Both risk and ambiguity aversion are shown to reduce annuity demand and enhance bond holdings. We obtain this result using an intertemporal framework in which we can vary both risk and ambiguity...

Two recent articles (Córdoba and Ripoll, 2017; Hugonnier, Pelgrin, and St-Amour, 2013) have proposed a recursive formulation of utility functions combining a positive value of life, preference homotheticity, and a constant elasticity of substitution. However, when the elasticity of substitution is...

We investigate whether the set of Kreps and Porteus (1978) preferences include classes of preferences that are stationary, monotonic and well-ordered in terms of risk aversion. We prove that the class of preferences introduced by Hansen and Sargent (1995) in their robustness analysis is the only...

This paper suggests a new explanation for the low level of annuitization, which is valid even if one assumes perfect markets. We show that, as soon there exists a positive bequest motive, sufficiently risk averse individuals should not purchase annuities. A model calibration accounting for...

We propose an asset pricing model featuring both limited participation and heterogeneity, in which agents randomly participate in the bond and stock markets according to a probability that depends on their non-financial income. We develop an indirect inference method to estimate our model on...

We present a simple theory of business-cycle movements of option prices and volumes. This theory relies on time-varying heterogeneity between agents in their demand for insurance against aggregate risk. Formally, we build an infinite-horizon model where agents face an aggregate risk, but also...

We analyze the term structure of real interest rates in a general equilibrium model with incomplete markets and borrowing constraints. Agents are subject to both aggregate and idiosyncratic income shocks, which latter may force them into early portfolio liquidation in a bad aggregate state. We...

We test whether the six Euler conditions in Section 4.3 of the main paper are satisfied for 10 long-run reversal portfolios, 25 size/investment portfolios, 25 size/operating profitability portfolios and 10 industry portfolios. The tests for Euler conditions are consistent with the model and...

We propose an asset pricing model featuring time-varying limited participation in both bond and stock markets and household heterogeneity. Households face idiosyncratic income risks but participate in financial markets with a certain probability that depends on their individual income and on...

In this paper we propose a stochastic volatility model for crude oil markets that has the particularity to feature a regime-switching price of variance-risk. While preserving tractability, this model allows us to capture the episodes of negative and positive variance risk premium. A two-state...