Construction of an aggregate consistent utility, without Pareto optimality. Application to Long-Term yield curve Modeling
Nicole El Karoui,
Caroline Hillairet and
Mohamed Mrad ()
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Nicole El Karoui: LPSM (UMR_8001) - Laboratoire de Probabilités, Statistique et Modélisation - UPD7 - Université Paris Diderot - Paris 7 - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique
Caroline Hillairet: ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris
Mohamed Mrad: LAGA - Laboratoire Analyse, Géométrie et Applications - UP8 - Université Paris 8 Vincennes-Saint-Denis - UP13 - Université Paris 13 - Institut Galilée - CNRS - Centre National de la Recherche Scientifique
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Abstract:
The aim of this paper is to describe globally the behavior and preferences of heterogeneous agents. Our starting point is the global wealth of the economy, with a given repartition of the wealth among investors, which is not necessarily Pareto optimal. We propose a construction of an aggregate forward utility, market consistent, that aggregates the marginal utility of the heterogeneous agents. This construction is based on the aggregation of the pricing kernels of each investor. As an application we analyze the impact of the heterogeneity and of the global wealth market on the yield curve.
Keywords: Utility aggregation; heterogeneous preferences; market-consistent progressive utility; yield curve (search for similar items in EconPapers)
Date: 2019-02-06
Note: View the original document on HAL open archive server: https://hal.science/hal-01721441v1
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Published in Frontiers in Stochastic Analysis - BSDEs, SPDEs and their Applications, 2019
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01721441
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