Quantitative asset pricing implications of endogenous solvency constraints
Fernando Alvarez and
Urban Jermann ()
No 99-5, Working Papers from Federal Reserve Bank of Philadelphia
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
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Journal Article: Quantitative Asset Pricing Implications of Endogenous Solvency Constraints (2001)
Working Paper: Quantitative Asset Pricing Implications of Endogenous Solvency Constraints (1999)
Working Paper: Quantitative Asset Pricing Implications of Endogenous Solvency Constraints
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