IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v5y1992i3p411-36.html
   My bibliography  Save this article

Asset Pricing with Stochastic Differential Utility

Author

Listed:
  • Duffie, Darrell
  • Epstein, Larry G

Abstract

Asset pricing theory is presented with representative-agent utility given by a stochastic differential formulation of recursive utility. Asset returns are characterized from general first-order conditions of the Hamilton-Bellman-Jacobi equation for optimal control. Homothetic representative-agent recursive utility functions are shown to imply that excess expected rates of return on securities are given by a linear combination of the continuous-time market-portfolio-based capital asset pricing model (CAPM) and the consumption-based CAPM. The Cox, Ingersoll, and Ross characterization of the term structure is examined with a recursive generalization, showing the response of the term structure to variations in risk aversion. Also, a new multicommodity factor-return model, as well as an extension of the "usual" discounted expected value formula for asset prices, is introduced. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Duffie, Darrell & Epstein, Larry G, 1992. "Asset Pricing with Stochastic Differential Utility," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 411-436.
    • Handle: RePEc:oup:rfinst:v:5:y:1992:i:3:p:411-36
    as

    Download full text from publisher

    File URL: http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/08939454
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:5:y:1992:i:3:p:411-36. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.