Quantitative Asset Pricing Implications of Endogenous Solvency Constraints / Fernando Alvarez, Urban J. Jermann.

Format:

Book

Author/Creator:

Alvarez, Fernando.

Contributor:

National Bureau of Economic Research.

Jermann, Urban J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6953.

NBER working paper series no. w6953

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Summary:

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.

Notes:

Print version record

February 1999.