Worst-case Robust Approach to the Equity Premium Puzzle
The inability of standard intertemporal economic models under resonable values of the key parameters to generate the observed equity premium is termed as the equity premium puzzle. In order to resolve the puzzle, we propose a new approach based on worst-case analysis where agents make decisions under risk and uncertainty. The consumption investment problem faced by agents is then posed as a continuous min-max model. The min-max strategy provides a guaranteed optimal performance in view of continuum of scenarios, varying between upper and lower bounds, of asset price and dividend. The worst-case performance will improve if any other scenario other than the worst-case is realised. Our preliminary results show that the worst-case approach allivates the equity premium puzzle
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:||04 Jul 2006|
|Date of revision:|
|Contact details of provider:|| Web page: http://comp-econ.org/Email: |
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sce:scecfa:514. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.