This paper presents a numerical analysis of an optimizing, equilibrium model of the risk premium in the forward foreign exchange market. An overlapping-generations model with incomplete markets is employed. Because the equilibria are analytically intractable, the model must be solved...

This paper presents a dynamic, optimizing model of the risk premium in the forward foreign exchange market. Agents face random endowments and money growth rates. Complete insurance markets do not exist and foreign exchange is held to hedge against risk. In some examples with log-linear...