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...

The rate of time preference is traditionally defined as the marginal rate of substitution between current and future consumption. This definition is not applicable when outcomes are indivisible. Such is the case in all discrete-choice dynamic problems which arise, for example, in modeling...

We consider a non-linear PDE that appears in a number of contexts including a one-way CSA, CVA with risky closeout, option pricing with differential borrowing and lending rates, accounting-consistent valuation, and constrained cash supply. We show that its solution is given as the minimum of...