We study a dynamic competitive equilibrium model with asymmetric information about time-variant aggregate risk aversion. We show that there still exists a linear price function in out model, a nice result in the other asymmetric information competitive equilibrium models. Furthermore, we show that in our model, asymmetric information play a role in the long run risk premium. When the proportion...

Using a nonlinear structural Vector Autoregression model based on the general no-arbitrage condition, we examine the empirical relation between macroeconomic shocks and the foreign exchange risk premiums. We find that when the predictable excess returns from currency speculation are interpreted as time-varying risk premiums, more than 80% of its volatility can be accounted for by the same funda...

The evaluation and control of an agent‘s debt has become a major issue in economics. In this paper we focus on firms and study credit risk, debt control and asset valuation of firms. We demonstrate that firm specific credit constraints and endogenous risk premia, based on collateralized borrowing, affect the asset value of the firm and, in turn, the collateral value of the firm. In order to exp...

The relative option pricing performance of Extended Generalised Leland models is examined in this study. We generalise the extended based on implied adjusted volatility introduced models. Non-parametric framework fitted into parametric option-pricing to achieve a more realistic pricing. To reflect real probability measure, information corrected terms risk premium. This study concentrates mainly...

We review one recent approach to the equity premium puzzle. The key elements of this approach are loss aversion and narrow framing, two well-known features of decisionmaking under risk in experimental settings. In equilibrium, models that incorporate these ideas can generate a large equity premium and a low and stable risk-free rate, even when consumption growth is smooth and only weakly correl...

This paper examines how the two fundamental principles in risk allocation, i.e., the mutuality principle and the transfer principle, can be implemented in order to manage efficiently catastrophic risk. From a decomposition of the insurable loss into idiosyncratic and systemic components, we show that the systemic risk is first filtered through a participating policy with a variable premium base...

We study asset-pricing implications of innovation in a general-equilibrium overlappinggenerations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call “displacement r...

We decompose the term structure of expected equity returns into (1) the real short rate, (2) a premium for holding real long-term bonds, or the real duration premium, the excess returns of nominal long-term bonds over real bonds which reflects (3) expected inflation and (4) inflation risk, and (5) a real cashflow risk premium, which is the excess return of equity over nominal bonds. The shape o...

This paper estimates the standard and tax-adjusted market risk premiums in New Zealand using historical data between 1931-2002 and a variant of the Siegel (1992) methodology. Similar to Siegel we present evidence that real bond yields in New Zealand were low over the period 1931-2002 and this may bias upwards an Ibbotsontype estimate of the market risk premium. Using an estimate for the histori...

We extend a standard, rational expectation model of trade to incorporate the possibility of individual investors delegating their trades to an informed financial intermediary. In the presence of delegated trade, we show that a firm’s risk premium is a function of both the firm’s exposure to a common risk factor and idiosyncratic characteristics of the firm’s information environment. We show tha...