International Asset Pricing with Risk-Sensitive Agents
University of North Carolina, Chapel Hill - Kenan-Flagler Business School
Mariano Massimiliano Croce
University of North Carolina Kenan-Flagler Business School
June 30, 2011
We propose a frictionless general equilibriummodel in which two international consumers with recursive preferences trade two consumption goods and a complete set of date- and state-contingent securities. Consumption home bias and concern for the temporal distribution of risk generate rich dynamics for international prices and quantities. In our model, exchange rate movements are as volatile as they are in the data. Furthermore, both the volatility of the exchange rate movements and risk premia are endogenously time varying and history dependent.
Number of Pages in PDF File: 41
Keywords: Recursive Preferences, time-varying volatility, international finance, exchange rates
JEL Classification: C62, F31, G12working papers series
Date posted: February 5, 2010 ; Last revised: October 3, 2012
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