This paper studies the problem of disentangling risk correlation and contagion in a set of individual binary processes. The two admissible values correspond to bad and good risk states of an individual. The risk correlation is captured by introducing a dynamic frailty, whereas the contagion...

Control problems with recursive multiple-priors utility (RMPU) are highly non-linear so that RMPU asset prices have been studied in very simple exchange economies only. We identify a continuous-time exchange equilibrium with locally-constrained entropy RMPU (LCE-RMPU) that is tractable even in...