A Simple Equilibrium Model

Tomas Bjork, Mariana Khapko () and Agatha Murgoci ()
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Mariana Khapko: University of Toronto
Agatha Murgoci: Ørsted

Chapter Chapter 14 in Time-Inconsistent Control Theory with Finance Applications, 2021, pp 139-144 from Springer

Abstract: Abstract We now go on to analyze the simplest possible equilibrium model. Unlike the previous chapter, where we studied individual consumption and portfolio choices while taking prices as given, in this chapter our goal will be to solve for the equilibrium prices of assets in the economy. In particular, we will be able to derive the equilibrium risk-free interest rate, the equilibrium Girsanov kernel, and the equilibrium stochastic discount factor. See Appendix A for the necessary background in arbitrage theory.

Date: 2021
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DOI: 10.1007/978-3-030-81843-2_14

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