Author : Larry G. Epstein
Release : 2004
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A Two-Person Dynamic Equilibrium Under Ambiguity - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook A Two-Person Dynamic Equilibrium Under Ambiguity write by Larry G. Epstein. This book was released on 2004. A Two-Person Dynamic Equilibrium Under Ambiguity available in PDF, EPUB and Kindle. This paper describes a pure-exchange, continuous-time economy with two heterogeneous agents and complete markets. A novel feature of the economy is that agents perceive some security returns as ambiguous in the sense often attributed to Frank Knight. The equilibrium is described completely in closed-form. In particular, closed-form solutions are obtained for the equilibrium processes describing individual consumption, the interest rate, the market price of uncertainty, security prices and trading strategies. After identifying agents as countries, the model is applied to address the consumption home-bias and equity home-bias puzzles.