Asset prices with locally constrained-entropy recursive multiple-priors utility

Alessandro Sbuelz; Fabio Trojani

doi:10.1016/j.jedc.2008.03.002

Asset prices with locally constrained-entropy recursive multiple-priors utility

Alessandro Sbuelz
, Fabio Trojani

University of St. Gallen

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

Abstract

Control problems with recursive multiple-priors utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with locally-constrained entropy RMPU (LCE-RMPU) that is tractable even in the presence of a stochastic opportunity set and incomplete markets. We find that time variation in the LCE-based ambiguity set is able to capture important features of consumption and asset markets data.

Original language	English
Pages (from-to)	3695-3717
Number of pages	23
Journal	JOURNAL OF ECONOMIC DYNAMICS & CONTROL
Volume	32
DOIs	https://doi.org/10.1016/j.jedc.2008.03.002
Publication status	Published - 2008

Keywords

Asset pricing
General equilibrium
Locally constrained entropy
Model misspecification
Recursive multiple-priors utility

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10.1016/j.jedc.2008.03.002

Cite this

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AU - Trojani, Fabio

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AB - Control problems with recursive multiple-priors utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with locally-constrained entropy RMPU (LCE-RMPU) that is tractable even in the presence of a stochastic opportunity set and incomplete markets. We find that time variation in the LCE-based ambiguity set is able to capture important features of consumption and asset markets data.

KW - Asset pricing

KW - General equilibrium

KW - Locally constrained entropy

KW - Model misspecification

KW - Recursive multiple-priors utility

KW - Asset pricing

KW - General equilibrium

KW - Locally constrained entropy

KW - Model misspecification

KW - Recursive multiple-priors utility

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M3 - Article

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VL - 32

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JO - JOURNAL OF ECONOMIC DYNAMICS & CONTROL

JF - JOURNAL OF ECONOMIC DYNAMICS & CONTROL

ER -

Asset prices with locally constrained-entropy recursive multiple-priors utility

Abstract

Keywords

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