Robust general equilibrium under stochastic volatility model

Weidong Xu, Chongfeng Wu and Hongyi Li ()

Finance Research Letters, 2010, vol. 7, issue 4, 224-231

Abstract: This paper studies the implications of model uncertainty under stochastic volatility model for equilibrium asset pricing. We derive the equilibrium equity premium and risk-free rate in a pure-exchange economy with one representative agent who is averse not only to risk but also to model uncertainty. The results show that robustness increases the equilibrium equity premium while lowers the risk-free rate.

Keywords: General; equilibrium; Robust; control; Stochastic; volatility; model; Equity; premium (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:7:y:2010:i:4:p:224-231

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