Multiple Trees Subject to Event Risk

We study an equilibrium asset pricing model with several Lucas (1978) trees subject toevent risk, that is, the possibility that trees experience unexpected disasters. We exploit themarket clearing mechanism, in the presence of multiple positive net supply assets, to showthat the implications of disasters for some cash-flows extend to the valuation of seeminglyunrelated ones.[...]

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Year of publication:	2009-06-01
Authors:	Porchia, Paolo ; Trojani, Fabio
Institutions:	National Centre of Competence in ResearchFinancial Valuation and Risk Management
Subject:	Preisbildung \| pricing \| Gleichgewicht

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I. Introduction
II. The Economy
III. Learning
A. Belief Dynamics
B. Characteristics of Disaster and Recovery Processes
IV. Model results
A. Aggregate Endowment and Endowment Share Dynamics
B. Equilibrium interest rate and risk premia
C. Price-Dividend Ratios, Risk Premia and Returns Volatility
V. Correlations
A. Trees event correlations
B. Assets return correlations
C. Disaster Contagion and Security Price Contagion
VI. Term structure of credit-spreads
VII. Conclusions
References
Appendix A: Proofs
Appendix B: A Simple Illustrative Calibration

Persistent link: https://www.econbiz.de/10005868703