Risk-Free Bond Prices in Incomplete Markets with Recursive Utility Functions and Multiple Beliefs

No 590, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We consider an exchange economy under uncertainty, in which agents' utility functions exhibit constant absolute risk aversion, but they may be recursive and the expected utility calculation may be based on multiple subjective beliefs. The risk aversion coefficients, subjective beliefs, subjective time discount factors, initial endowments, and tradeable assets may differ across agents. We prove that the risk-free bond price goes down (and the interest rate goes up) monotonically as the markets become more complete. We find the range of equilibrium bond prices that depends on the primitives of the economy but not on the structures of financial markets.

Keywords: multiple priors; no trade; dynamic consistency; interim efficiency; rectangularityi (search for similar items in EconPapers)
JEL-codes: D52 D91 E21 E44 G12 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2004-05
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-mac and nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.kier.kyoto-u.ac.jp/DP/DP590.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:590

Access Statistics for this paper

More papers in KIER Working Papers from Kyoto University, Institute of Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Makoto Watanabe ().