Description
Book SynopsisReal world investors differ in their tastes and attitudes and they do not have, in general, perfect information about the future prospects of the economy. Most theoretical models, however, assume to the contrary that investors are homogeneous and perfectly informed about the market. In this book, an attempt is made to overcome these shortcomings. In three different case studies, the effect of heterogeneous time preferences, heterogeneous beliefs and imperfect information about the economy's growth on the term structure of interest rates are studied. The initial chapter gives an introduction to the theory of financial markets in continuous time under imperfect information and establishes the existence of an equilibrium with complete markets.
Table of ContentsInformation.- Equilibrium with Imperfect Information and Complete Asset Markets in Continuous Time: Introduction; A Competitive Financial Market with Imperfect Information; Martingale Representation Theorem for the Innovation Process; The Existence of an Arrow-Debreu Equilibrium, Pareter Efficiency and the Representation Agent; Completeness of the Market and Existence of a Financial Equilibrium; Pricing Redundant Securities and the Term Structure of Interest Rates.- Heterogeneous Time Preferences - Preferred Habitat Theory Revisited: Modeling Preferred Habitat Time Preferences; A Model with Heterogeneous Time Preferences; Equilibrium; Analysis of the Term Structure; The Demand for Long-Term Bonds.- Imperfect Information: The Term Structure when the Growth Rate is Unknown: The Model; Estimating the Drift; Equilibrium with Perfect and Imperfect Information; The Yield Curve with Normal and Bernoulli Prior Beliefs; General Prior Beliefs.- Bulls and Bears: Heterogeneous Expectations: Setup; Equilibrium; Two Examples.
