On the Range of the Risk-Free Interest Rate in Incomplete Markets

Atsushi Kajii and Chiaki Hara ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: In a model of a two-period exchange economy under uncertainty, we find both upper and lower bounds for the risk free interest rate when the agents’ utility function exhibit constant absolute risk aversion. These bounds are independent of the degree of market incompleteness, and so these results show to what extent market incompleteness can explain the risk-free rate puzzle in this class of general equilibrium models with heterogeneous agents. A general method of finding bounds without the assumption of constant absolute risk aversion is also presented.

Date: 2000-12
Note: Ma
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Related works:
Working Paper: On the Range of the Risk-Free Interest Rate in Incomplete Markets (2003)
Working Paper: On the Range of the Risk-Free Interest Rate in Incomplete Markets (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0030

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