Date of Original Version

7-14-2015

Type

Working Paper

Abstract or Description

We construct continuous-time equilibrium models based on a fi- nite number of exponential utility investors. The investors’ income rates as well as the stock’s dividend rate are governed by discontinuous L´evy processes. Our main result provides the equilibrium (i.e., bond and stock price dynamics) in closed-form. As an application, we show that the equilibrium Sharpe ratio can be increased and the equilibrium interest rate can be decreased (simultaneously) when the investors’ income streams cannot be traded.

Included in

Mathematics Commons

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