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Robust general equilibrium under stochastic volatility model

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  • Xu, Weidong
  • Wu, Chongfeng
  • Li, Hongyi

Abstract

This paper studies the implications of model uncertainty under stochastic volatility model for equilibrium asset pricing. We derive the equilibrium equity premium and risk-free rate in a pure-exchange economy with one representative agent who is averse not only to risk but also to model uncertainty. The results show that robustness increases the equilibrium equity premium while lowers the risk-free rate.

Suggested Citation

  • Xu, Weidong & Wu, Chongfeng & Li, Hongyi, 2010. "Robust general equilibrium under stochastic volatility model," Finance Research Letters, Elsevier, vol. 7(4), pages 224-231, December.
    • Handle: RePEc:eee:finlet:v:7:y:2010:i:4:p:224-231
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    References listed on IDEAS

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    Cited by:

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    3. Weidong Xu & Hongyi Li & Chongfeng Wu, 2011. "A Robust General Equilibrium Stochastic Volatility Model with Recursive Preference Investors," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 217-231, November.
    4. Yi, Bo & Li, Zhongfei & Viens, Frederi G. & Zeng, Yan, 2013. "Robust optimal control for an insurer with reinsurance and investment under Heston’s stochastic volatility model," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 601-614.
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    7. Chen, Yan & Wang, Xuancheng, 2015. "A hybrid stock trading system using genetic network programming and mean conditional value-at-risk," European Journal of Operational Research, Elsevier, vol. 240(3), pages 861-871.

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