Dynamic Consumption-Portfolio Choice and Asset Pricing with Non-Price-Taking Agents (Revised: 7-95)
This paper develops a continuous-time pure exchange model to theoretically study the dynamic consumption-portfolio problem of an agent who acts as a non-price-taker, and to analyze the implications of his behavior on the security prices and their dynamics. The non-price-taking behavior is modeled by allowing the non-price-taker’s consumption stream to affect Arrow-Debreu prices. This allows us to employ martingale methods in a natural way, making the analysis highly tractable. We define non-price-taking equilibrium in an economy of N price-takers and one non-price-taker, and show the existence and uniqueness of this equilibrium under common assumptions about the agents’ utility functions and dividend streams. Solving for the equilibrium consumption allocations reveals the existence of another driving factor apart from the aggregate consumption stream, the endowment stream of the non-price-taker, which leads to modified formulae for the interest rate and the consumption CAPM. We characterize the equilibrium consumption-portfolio allocations, and the Arrow-Debreu and security prices and their dynamics, i.e., the interest rate, market prices of risk, asset price volatility and risk premium. A variety of comparisons of equilibria between a price-taking and a non-price-taking economy are carried out, in some cases for general utility functions and in some cases for CARA utility of all agents. Intuition for the results is offered.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: 3254 Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104-6367|
Phone: (215) 898-7616
Fax: (215) 573-8084
Web page: http://finance.wharton.upenn.edu/~rlwctr/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fth:pennfi:8-94. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.