Heterogeneous impatience in a continuous-time model
- Resource Type
- Authors
- Chiaki Hara
- Source
- Mathematics and Financial Economics. 2:129-149
- Subject
- jel:D91
Statistics and Probability
jel:D81
Endogenous growth theory
Complete market
jel:D51
Mathematical finance
jel:D61
jel:D53
Covariance
jel:G12
jel:G13
Representative consumer, expected utility, time additivity, multiplicative separability, impatience, risk tolerance, state-price deflator, short-rate process, complete monotonicity
Microeconomics
Derivative (finance)
Short rate
Market price
Economics
Endogenous Growth
Representative consumer, risk tolerance, impatience, state-price deflator, shortrate process, market price of risk
Statistics, Probability and Uncertainty
Finance
Expected utility hypothesis
- Language
- ISSN
- 1862-9660
1862-9679
In a continuous-time economy with complete markets, we study how the heterogeneity in the individual consumers' risk tolerance and impatience affects the representative consumer's risk tolerance and impatience. We derive some formulas, which indicate that the representative consumer's impatience decrease over time, and whether his risk tolerance increases or decreases over time depends on the sign of some weighted covariance between the individual consumers' cautiousness (derivative of risk tolerance with respect to own consumptions) and impatience. These results are then used to show that the short rate tends to decrease over time and the market price of risk is volatile in some special cases of heterogeneous economies.