Recursive utility and jump-diffusions

Knut Aase

No 2014/9, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: We derive the equilibrium interest rate and risk premiums using recursive utility for jump-diffusions. Compared to to the continuous version, including jumps allows for a separate risk aversion related to jump size risk in addition to risk aversion related to the continuous part. We also consider a version that allows marginal utility to depend on past consumption. The models with jumps are shown to have a potential to give better explanation of empirical regularities than the recursive models based on merely continuous dynamics.

Keywords: Recursive utility; jump dynamics; the stochastic maximum principle; early resolution; utility gradients (search for similar items in EconPapers)
JEL-codes: D51 D53 D90 E21 G10 G12 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-03-25
New Economics Papers: this item is included in nep-ger, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Recursive utility and jump-diffusions (2025)
Working Paper: Recursive utility and jump-diffusions (2015)
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