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Asset prices with locally constrained-entropy recursive multiple-priors utility

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Author Info
Sbuelz, Alessandro
Trojani, Fabio

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Abstract

Control problems with recursive multiple-priors utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with locally-constrained entropy RMPU (LCE-RMPU) that is tractable even in the presence of a stochastic opportunity set and incomplete markets. We find that time variation in the LCE-based ambiguity set is able to capture important features of consumption and asset markets data.

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File URL: http://www.sciencedirect.com/science/article/B6V85-4S50K2S-1/2/434ed80a689ce2901a9cbbd9c618df3a
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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 11 (November)
Pages: 3695-3717
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Handle: RePEc:eee:dyncon:v:32:y:2008:i:11:p:3695-3717

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Web page: http://www.elsevier.com/locate/jedc

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Related research
Keywords: Asset pricing General equilibrium Model misspecification Recursive multiple-priors utility Locally constrained entropy;

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