The effects of endogenous undiversifiable investment and market structure changes on security pricing are analyzed within the GEI-CAPM (General Equilibrium with Incomplete Markets Capital Asset Pricing Model). Both the mutual fund and security market line theorems are extended conditional to a...

We introduce a leverage-constrained financial intermediaries and market incompleteness into a three-period pure exchange economy with ex ante homogeneous households. Market incompleteness generates ex post heterogeneity in households' consumption and wealth distributions and arbitrage...

A dynamic pure-exchange general equilibrium model with uncertainty is studied. Fundamentals are supposed to depend continuously on states of nature. It is shown that: 1. if financial markets are complete, then asset prices vary continuously with states of nature, and; 2. if financial markets are...

This paper develops a simulation-based solution method to solve large state space macrofinance models using machine learning. We use a neural network (NN) to approximate the expectations in the optimality conditions in the spirit of the stochastic parameterized expectations algorithm (PEA)....

We show that an intrinsic property of a large class of rational bubbles is their capacity to relax the agents' debt limits. Any bubble that preserves the set of pricing kernels, or equivalently, the asset span, has effectively an identical effect on consumption and real interest rates as an...

We use supervised machine learning to approximate the expectations typically contained in the optimality conditions of an economic model in the spirit of the parameterized expectations algorithm (PEA) with stochastic simulation. When the set of state variables is generated by a stochastic...