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Probability and Math Finance Seminar

Kasper Larsen

The equity premium puzzle and unspanned random endowment

Abstract

This paper presents a continuous time and state model in which heterogeneous agents receive partially unspanned random endowment. We show that this incompleteness feature produces a higher equilibrium risk premium relative to an equivalent model where all risks are spanned. Finally, we consider the impact due to incompleteness on prices of derivative securities such as European options.

MONDAY, September 28, 2009
Time: 5:00 P.M.
Location: WeH 6423