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 4 in Time-Inconsistent Control Theory with Finance Applications, 2021, pp 27-38 from Springer

Abstract: Abstract In this chapter we study a time-consistent equilibrium model, namely a discrete-time simplified version of the Cox–Ingersoll–Ross continuous-time model. We start by analyzing a consumption–investment problem in which the agent considers all prices as exogenously given. We then move to the equilibrium framework, in which the short rate, the stochastic discount factor, and the martingale measure are determined endogenously in equilibrium. In Chap. 10 we will study a time-inconsistent version of this standard problem, and it will be instructive to compare the results.

Date: 2021
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DOI: 10.1007/978-3-030-81843-2_4

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