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GENERAL EQUILIBRIUM WITH CONSTANT RELATIVE RISK AVERSION AND VASICEK INTEREST RATES (1996)

Goldstein, Robert ; Zapatero, Fernando

Oxford, UK : Blackwell Publishing Ltd

Mathematical finance 6 (1996), S. 0

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ISSN: 1467-9965

Source: Blackwell Publishing Journal Backfiles 1879-2005

Topics: Mathematics , Economics

Notes: We consider a pure exchange economy consisting of a single risky asset whose dividend drift rate is modeled as an Omstein-Uhlenbeck process, and a representative agent with power-utility who, in equilibrium, consumes the dividend paid by the risky asset. Endogenously determined interest rates are found to be of the Vasicek (1977) type the mean and variance of the equilibrium stock price are stochastic and have mean-reverting components A closed-form solution for a standard call option is determined for the case of log-utility. Equilibrium values have interesting implications for the equity premium puzzle observed by Mehra and Prescott (1985)

Type of Medium: Electronic Resource

URL: http://dx.doi.org/10.1111/j.1467-9965.1996.tb00120.x

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