A General Equilibrium Model with k State Variables

Hamilton Galindo Gil ()
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Hamilton Galindo Gil: Cleveland State University, Department of Finance and Economics

Chapter Chapter 5 in Heterogeneous Agents in Asset Pricing, Vol 1, 2025, pp 143-197 from Springer

Abstract: Abstract This chapter provides a step-by-step explanation of the Cox et al. (Econometrica, 53(2), 363–384 (1985a)) model, a foundational representative agent framework in continuous-time finance. We carefully derive the wealth dynamics, transform the stochastic optimal control problem into a dynamic programming framework, and present each first-order condition. Additionally, we detail the Hamilton-Jacobi-Bellman (HJB) equilibrium equation and the partial differential equation for asset prices. As a cornerstone of the continuous-time asset pricing literature, this model serves as the basis for more advanced frameworks incorporating representative or heterogeneous agents.

Date: 2025
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DOI: 10.1007/978-3-031-93263-2_5

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