Quantitative Asset Pricing Implications of Endogenous Solvency Constraints
Fernando Alvarez and
Urban Jermann ()
No 6953, NBER Working Papers from National Bureau of Economic Research, Inc
We study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. We 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. We characterize the deviations from independence of aggregate and individual income uncertainty that produce equity and term premia.
JEL-codes: D50 G12 (search for similar items in EconPapers)
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Published as Alvarez, F. and U. J. Jermann. "Quantitative Asset Pricing Implications Of Endogenous Solvency Constructs," Review of Financial Studies, 2001, v14(4,Oct), 1117-1151.
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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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