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Quantitative asset pricing implications of endogenous solvency constraints

Fernando Alvarez and Urban Jermann ()

No 99-5, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The authors study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. The authors present a simple example for which efficient allocations and all equilibrium elements are characterized analytically. The main model produces large equity premia and risk premia for long-term bonds with low risk aversion and a plausibly calibrated income process. The authors characterize the deviations from independence of aggregate and individual income uncertainty that produce equity and term premia.

Keywords: Asset; pricing (search for similar items in EconPapers)
Date: 1999, Revised 1999
New Economics Papers: this item is included in nep-fin
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Related works:
Journal Article: Quantitative Asset Pricing Implications of Endogenous Solvency Constraints (2001)
Working Paper: Quantitative Asset Pricing Implications of Endogenous Solvency Constraints (1999) Downloads
Working Paper: Quantitative Asset Pricing Implications of Endogenous Solvency Constraints Downloads
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