Department of Economics and Business Economics

Olaf Posch

Risk premia in general equilibrium

Research output: Working paperResearch

Documents

  • Rp09 58

    Final published version, 737 KB, PDF document

  • School of Economics and Management
This paper shows that non-linearities can generate time-varying and asymmetric
risk premia over the business cycle. These (empirical) key features become relevant and
asset market implications improve substantially when we allow for non-normalities in
the form of rare disasters. We employ explicit solutions of dynamic stochastic general
equilibrium models, including a novel solution with endogenous labor supply, to obtain
closed-form expressions for the risk premium in production economies. We find that
the curvature of the policy functions affects the risk premium through controlling the
individual's effective risk aversion.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages47
Publication statusPublished - 2009

    Research areas

  • Risk premium, Continuous-time DSGE, Optimal stochastic control

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