Heterogeneous Beliefs with Mortal Agents

A. A. Brown and L. C. G. Rogers
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A. A. Brown: Statistical Laboratory, University of Cambridge, USA
L. C. G. Rogers: Statistical Laboratory, University of Cambridge, USA

Chapter 3 in Recent Advances in Financial Engineering 2009, 2010, pp 65-89 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis paper will examine a model with many agents, each of whom has a different belief about the dynamics of a risky asset. The agents are Bayesian and so learn about the asset over time. All agents are assumed to have a finite (but random) lifetime. When an agent dies, he passes his wealth (but not his knowledge) onto his heir. As a result, the agents never become sure of the dynamics of the risky asset. We derive expressions for the stock price and riskless rate. We then use numerical examples to exhibit their behaviour.

Keywords: Financial Engineering; Mathematical Finance; Credit Risk; Real Options; Optimal Investment; Heterogeneous Beliefs (search for similar items in EconPapers)
Date: 2010
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