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

Alessandro Sbuelz and Fabio Trojani ()

Journal of Economic Dynamics and Control, 2008, vol. 32, issue 11, 3695-3717

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.

Keywords: Asset; pricing; General; equilibrium; Model; misspecification; Recursive; multiple-priors; utility; Locally; constrained; entropy (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:32:y:2008:i:11:p:3695-3717

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