ISBN: 3540003444
TITLE: Incomplete Information and...
AUTHOR: Ziegler
TOC:

1 Incomplete Information: An Overview 1
1.1 Introduction 1
1.2 Portfolio Choice 1
1.2.1 Gennotte's Model 2
1.2.2 The Inference Process 4
1.2.3 Optimal Portfolio Choice 4
1.2.4 An Example 7
1.2.5 The Short Interest Rate 9
1.3 The Term Structure of Interest Rates 10
1.3.1 Dothan and Feldman's Models 10
1.3.2 A Characterization of the Term Structure 11
1.4 Equilibrium Asset Pricing 15
1.4.1 Honda's Model 16
1.4.2 The Equilibrium Price Process 17
1.5 Conclusion and Outlook 19
2 The Impact of Incomplete Information on Utility, Prices, and Interest Rates 23
2.1 Introduction 23
2.2 The Model 25
2.3 Equilibrium 27
2.3.1 The Equilibrium Expected Lifetime Utility 27
2.3.2 The Equilibrium Price 28
2.3.3 The Equilibrium Interest Rate 30
2.4 Logarithmic Utility 31
2.4.1 The Equilibrium Expected Lifetime Utility 31
2.4.2 The Equilibrium Price 32
2.4.3 The Equilibrium Interest Rate 33
2.5 Power Utility 35
2.5.1 The Equilibrium Expected Lifetime Utility 35
2.5.2 The Equilibrium Price 40
2.5.3 The Equilibrium Interest Rate 48
2.5.4 Hedging Demand and the Equilibrium Price of Estimation Risk 50
2.6 Information, Utility, Prices, and Interest Rates: A Synthesis 51
2.6.1 Expected Lifetime Utility 51
2.6.2 Share Prices 52
2.6.3 Interest Rates 53
2.7 Time-Varying Parameters 55
2.7.1 The Equilibrium Expected Lifetime Utility 56
2.7.2 The Equilibrium Price 58
2.7.3 The Equilibrium Interest Rate 58
2.8 Conclusion 61
3 Optimal Portfolio Choice Under Heterogeneous Beliefs 65
3.1 Introduction 65
3.2 The Model 67
3.3 The Deviant Agent's Problem 70
3.4 Optimal Portfolio Choice 71
3.5 An Example 74
3.6 Conclusion 78
4 Optimal Consumption Under Heterogeneous Beliefs 81
4.1 Introduction 81
4.2 The Cox-Huang Methodology 82
4.3 Heterogeneous Beliefs 84
4.4 An Example 86
4.4.1 The Model 86
4.4.2 Optimal Consumption Patterns Under Heterogeneous
Beliefs 87
4.4.3 An Algebraic Solution 95
4.4.4 The Effect of the Time Horizon 102
4.5 Portfolios and Consumption: A Synthesis 105
4.6 Conclusion 107
5 Equilibrium Asset Pricing Under Heterogeneous Beliefs 109
5.1 Introduction lO9
5.2 The Model 111
5.3 Equilibrium Consumption 113
5.4 Equilibrium Prices 116
5.4.1 The Equilibrium State-Price Density 117
5.4.2 The Equilibrium Short Rate 123
5.4.3 The Equilibrium Yield Curve 128
5.4.4 The Equilibrium Share Price 133
5.4.5 Equilibrium Option Prices and the "Smile Effect" 139
5.5 Implied Risk Aversion 145
5.6 Conclusion 146
6 Costly Information, Imperfect Learning, and Information Aggregation 149
6.1 Introduction 149
6.2 The Model 151
6.2.1 The Economy 151
6.2.2 The Inference Process: Imperfect Learning 152
6.3 Portfolio Choice under Costly Information 154
6.3.1 The Agent's Problem 154
6.3.2 The Agent's Optimal Investment and Research Policy 155
6.3.3 Determinants of the Demand for Information 157
6.3.4 Diversification and Information Costs 160
6.4 Equilibrium Asset Pricing 161
6.5 Information Aggregation and the Equity Premium 165
6.6 Conclusion 170
7 Summary and Conclusion 173
A Conditional Mean and Variance of ln(x_s) 179
B Conditional Mean and Variance of ln(x_s) with Time-Varying Parameters 181
C The Short Rate Under Heterogeneous Beliefs 183
References 187
List of Figures 191
List of Tables 193
List of Symbols 195
END
