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Risk premia in general equilibrium

Olaf Posch ()

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper shows that non-linearities can generate time-varying and asymmetric risk premia over the business cycle. These (empirical) key features become relevant and asset market implications improve substantially when we allow for non-normalities in the form of rare disasters. We employ explicit solutions of dynamic stochastic general equilibrium models, including a novel solution with endogenous labor supply, to obtain closed-form expressions for the risk premium in production economies. We find that the curvature of the policy functions affects the risk premium through controlling the individual's effective risk aversion.

Keywords: Risk premium; Continuous-time DSGE; Optimal stochastic control (search for similar items in EconPapers)
JEL-codes: E21 G11 O41 (search for similar items in EconPapers)
Pages: 47
Date: 2009-11-01
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-upt
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https://repec.econ.au.dk/repec/creates/rp/09/rp09_58.pdf (application/pdf)

Related works:
Journal Article: Risk premia in general equilibrium (2011) Downloads
Working Paper: Risk premia in general equilibrium (2011) Downloads
Working Paper: Risk Premia in General Equilibrium (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2009-58

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