We study utility indifference pricing of claim streams with intertemporalconsumption and power (CRRA) utilities. We derive explicit formulasfor the derivatives of the utility indifference price with respect toclaims and wealth. The simple structure of these formulas is a reflectionof surprising...

We extend the Lucas asset pricing tree economy to a heterogeneous population.Perturbative methods are applied to explicitly calculate the secondorder response of asset returns to heterogeneity. We discover thatthere exists a unique "best homogeneous approximation" to a weakly...

We prove that for any incomplete market and any concave utilityfunction the marginal propensities to consume and to save are alwayspositive. Furthermore, we introduce a class of incomplete markets thatincludes almost all well known examples of market incompleteness infinance and macroeconomics....

We study the existence of equilibria with endogenously complete markets in a continuous-time, heterogenous agents economy driven by a multidimensional diffusion process. Our main results show that if prices are real analytic as functions of time and the state variables of the model then a...

We introduce a general class of incomplete markets that includes almost all well known examples of market incompleteness in finance and macroeconomics. Two concrete examples are the problem of idiosyncratic income shocks and general, diffusion driven incompleteness. For all markets in this class...

We analyze an equilibrium model in which agents exposed to idiosyncratic risk can purchase insurance policies in addition to financial assets. The price of an insurance contract depends nonlinearly on the claims and explicitly contains safety loadings, proportional to variance. We consider...

We present the first step in a program to develop a comprehensive, unified equilibrium theory of asset and liability pricing. We give a mathematical framework for pricing insurance products in a multiperiod financial market. This framework reflects classical economic principles (like utility...