Evaluation of long-dated assets: The role of parameter uncertainty

Christian Gollier ()

Journal of Monetary Economics, 2016, vol. 84, issue C, 66-83

Abstract: Under expected utility, the uncertainty that affects the parameters of the random walk of consumption growth has no effect on the value of short-term claims and makes the term structure of risk-free rates decreasing. The term structure of aggregate risk premia is increasing when the uncertain cumulants of log consumption are independent. We apply these generic results to the case of an uncertain probability of catastrophes, and to the case of an uncertain trend or volatility of growth. Adding some persistence to unobservable shocks into our benchmark model, we show that the term structure of risk premia is hump-shaped.

Keywords: Term structure; Decreasing discount rates; Deep uncertainty; Rare events; Long-run risk (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030439321630109X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Evaluation of long-dated assets: The role of parameter uncertainty (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:84:y:2016:i:c:p:66-83

DOI: 10.1016/j.jmoneco.2016.10.007

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().