Recursive Utility and Jump-Diffusions
Copyright policy )Recursive Utility and Jump-Diffusions
We derive the equilibrium interest rate and risk premiums using recursive utility for jump-diffusions. Compared to to the continuous version, including jumps allows for a separate risk aversion related to jump size risk in addition to risk aversion related to the continuous part. We also consider a version that allows marginal utility to depend on past consumption. The models with jumps are shown to have a potential to give better explanation of empirical regularities than the recursive models based on merely continuous dynamics.
utility gradients, VDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212, recursive utility, the stochastic maximum principle, early resolution, Recursive utility; jump dynamics; the stochastic maximum principle; early resolution; utility gradients, jump dynamics, Recursive utility; jump dynamics; the stochastic maximum principle, jel: jel:D90, jel: jel:D51, jel: jel:E21, jel: jel:D53, jel: jel:G12, jel: jel:G10
utility gradients, VDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212, recursive utility, the stochastic maximum principle, early resolution, Recursive utility; jump dynamics; the stochastic maximum principle; early resolution; utility gradients, jump dynamics, Recursive utility; jump dynamics; the stochastic maximum principle, jel: jel:D90, jel: jel:D51, jel: jel:E21, jel: jel:D53, jel: jel:G12, jel: jel:G10
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