Prices of contracts with risky aspects are typically linked to specific uncertainties and probabilities of adverse scenarios. Insurance companies carry the risk of losses in exchange for a premium, which depends on the loss distribution. Another example where risk is exchanged for a fixed price...

Motivated by the problems of the conventional model in rationalizing market data, we derive the equilibrium interest rate and risk premiums using recursive utility in a continuous-time model. We use the stochastic maximum principle to analyze the model. This method uses forward/backward...