Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2014/9: Recursive utility and jump-diffusions

Knut K. Aase ()
Additional contact information
Knut K. Aase: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: We derive the equilibrium interest rate and risk premiums using recursive utility for jump-diffusions. Compared to to the continuous version, including jumps allows for a separate risk aversion related to jump size risk in addition to risk aversion related to the continuous part. We also consider a version that allows marginal utility to depend on past consumption. The models with jumps are shown to have a potential to give better explanation of empirical regularities than the recursive models based on merely continuous dynamics.

Keywords: Recursive utility; jump dynamics; the stochastic maximum principle; early resolution; utility gradients

JEL-codes: D51; D53; D90; E21; G10; G12

41 pages, March 25, 2014

Full text files

194972  

Download statistics

Questions (including download problems) about the papers in this series should be directed to Stein Fossen ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-01-23 23:36:07.