December 2015
Intermediate to advanced
368 pages
8h 7m
English
Content preview from Finance, Economics, and Mathematics
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Part ThreeGeneral Equilibrium
Suppose each participant in an economy maximizes the expected isoelastic utility of end-of-period wealth. When the technology risk is independent of the production risk, the equilibrium value of the short rate is given by
where A(t) is the production process, Y(t) is the state price density process, and
is the average coefficient of risk tolerance as of the end of the period. If 
, then
(page 108)
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