Exponential utility with non-negative consumption
AbstractThis paper investigates various aspects of the discrete-time exponential utility maximization problem with non-negative consumption. Using the Kuhn-Tucker theorem and the notion of aggregate state price density (Malamud and Trubowitz (2007)), we provide a solution to this problem in the setting of both complete and incomplete markets (with random endowments). Then, we exploit this result to provide an explicit characterization of complete market heterogeneous equilibria. Furthermore, we construct concrete examples of models admitting multiple (including infinitely many) equilibria. By using Cramer's large deviation theorem, we study the asymptotics of equilibrium zero coupon bonds. Lastly, we conduct a study of the precautionary savings motive in incomplete markets.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1106.3006.
Date of creation: Jun 2011
Date of revision: Sep 2012
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
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