<北京大学数量经济与数理金融教育部重点实验室>学术报告——General Equilibrium with Unhedgeable Fundamentals and Heterogeneous Agents
Abstract:
This paper examines the implications of unhedgeable fundamental risk, combined with agents' heterogeneous preferences and wealth allocations, on dynamic asset pricing and portfolio choice. We solve in closed form a continuous-time general equilibrium model in which unhedgeable fundamental risk affects aggregate consumption dynamics, rendering the market incomplete. Several long-lived agents with heterogeneous risk-aversion and time-preference make consumption and investment decisions, trading risky assets and borrowing from and lending to each other. We find that a representative agent does not exist. Agents trade assets dynamically. Their consumption rates depend on the history of unhedgeable shocks. Consumption volatility is higher for agents with preferences and wealth allocations deviating more from the average. Unhedgeable risk reduces the equilibrium interest rate only through agents' heterogeneity and proportionally to the cross-sectional variance of agents' preferences and allocations.
Biography:
Paolo Guasoni holds the Stokes Chair in Financial Mathematics at Dublin City University since 2009 and is a Professor at the University of Bologna. His research investigates the effects of market frictions, incentives, and preferences in portfolio choice and asset pricing, and has appeared in Annals of Applied Probability, Finance and Stochastics, Journal of Financial Economics, Management Science, Mathematical Finance, and the SIAM Journal on Financial Mathematics. He has been funded by the European Research Council, the National Science Foundation, and Science Foundation Ireland. He served as consultant for the US Federal Home Loan Mortgage Corporation (Freddie Mac).
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