Published in:Jacobs Levy Equity Management Center for Quantitative Financial Research Paper
Extent:
1 Online-Ressource (48 p)
Language:
English
DOI:
10.2139/ssrn.2955337
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 16, 2018 erstellt
Description:
We solve for asset prices in a general affine representative-agent economy with isoelastic recursive utility and rare events. Our novel solution method is exact in two special cases: no preference for early resolution of uncertainty and elasticity of intertemporal substitution equal to one. Our results clarify model properties governed by the elasticity of intertemporal substitution, by risk aversion, and by the preference for early resolution of uncertainty. Finally, we show in a general setting that the linear relationbetween normal-times covariances and expected returns need not hold in a model with rare events