Ambiguity, risk and asset returns in continuous time
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Cites background from "Ambiguity, risk and asset returns i..."
...8) is provided in [7], where it is argued that it permits a three-way separation between the two noted aspects of preference and attitudes towards ambiguity....
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...1) is essentially that adopted in [13], though without axiomatic foundations; a continuous-time counterpart is formulated in [7]....
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...where P is the agent’s set of priors over the state space and the s-algebra Ft represents information available at time t:(1) An essential feature is that P is restricted by the noted axioms to satisfy not only the regularity conditions for sets of priors in the atemporal model, but also a property that (following [7]) we call rectangularity....
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...The noted backward recursion underlies the dynamic consistency of preference, which in turn delivers tractability as demonstrated in [7,11,13]....
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References
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"Ambiguity, risk and asset returns i..." refers background in this paper
...An illustration of the potential usefulness of recognizing the presence of ambiguity is provided by the equity premium puzzle (Mehra and Prescott (1985)-the failure of the representative agent model to fit historical averages of the equity premium and the risk-free rate....
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"Ambiguity, risk and asset returns i..." refers background in this paper
...2 To explain this nomenclature, note that stochastic differential utility is the continuous-time counterpart of recursive utility (Epstein and Zin (1989))....
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...Here W is an aggregator function (strictly increasing in its second argument) analogous to that appearing in Epstein and Zin (1989) and motivated there by the desire to disentangle risk aversion from other aspects of preference....
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"Ambiguity, risk and asset returns i..." refers background in this paper
...By the existence and uniqueness result in Pardoux and Peng (1990), there exist unique solutions (V,, o-r) and (VQ, o-fQ) to (2.17) and (2.16) respectively....
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...However, the arguments in Pardoux and Peng (1990) and Peng (1997) rely only on progressive measurability of the above map for each fixed (y, v)....
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