Asset Pricing with Stochastic Habit Formation

International Asset Pricing under Habit Formation and Idiosyncratic Consumption Risk

This paper presents a consumption-based asset pricing model to explain the equity premium and riskfree puzzles as well as the predictability of returns in the international equity markets. We find that because the model entails idiosyncratic consumption risk which is higher than the aggregate consumption risk, the model helps lower the investor risk aversion needed to explain the mean equity pr...

Asset Pricing With Multiplicative Habit and Power-Expo Preferences

Multiplicative habit introduces an additional consumption risk as a determinant of equity premium, and allows time preference and habit strength, in addition to risk aversion, to affect “price of risk”. A model combining multiplicative habit and power-expo preferences cannot be rejected.

Asset pricing under information with stochastic volatility

Based on a general specification of the asset specific pricing kernel, we develop a pricing model using an information process with stochastic volatility. We derive analytical asset and option pricing formulas. The asset prices in this rational expectations model exhibit crash-like, strong downward movements. The resulting option pricing formula is consistent with the strong negative skewness a...

Asset Pricing with Stochastic Differential Utility

Asset Pricing Bubble Formation with Heterogenous Agents

In this paper we study the accruement and decay of asset pricing bubbles under the assumption that young agents behave boundedly rational when rst entering the market and then gain more and more experience when growing older, nally reaching a state of perfect rational behavior. Therefore we set up an overlapping generations model where agents form their beliefs about the payo of a risky asset b...