Relative Existence for Recursive Utility

Abstract

Existence theorems for endowment economies with growth and sophisticated recursive preferences have proven difficult to come by. We offer a simple proof technique that covers many models of interest, such as the Bansal-Yaron long-run risk model, models with stochastic volatility and jumps, models with volatility of volatility and models with consumption disasters and time-varying intensities. We also prove existence for models with smooth ambiguity aversion and learning. Collectively these results cover many of the leading asset pricing models today.

Keywords: Asset pricing, long-run risk, recursive utility, relative existence

JEL Classification: G11, G12