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We analyze consumption and asset pricing with recursive preferences given by Kreps--Porteus stochastic differential utility (K--P SDU). We show that utility depends on two state variables: current consumption and a second variable (related to the wealth--consumption ratio) that captures all...
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We show how to construct arbitrage-free models of the yield curve in which the expectations hypothesis holds. We generalize a previous example of McCulloch's in three ways: (i) by characterizing the hypotheses in terms of forward rates; (ii) by showing how to construct examples of a whole class...
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When preferences are homothetic, utility can be expressed in terms of current consumption and a variable that captures all information about future opportunities. We use this observation to express the differential equation that characterizes utility as a restriction on the information variable...
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