Computational Methods for Production-Based Asset Pricing Models with Recursive Utility

Aldrich, E M and Kung, H (2021) Computational Methods for Production-Based Asset Pricing Models with Recursive Utility. Studies in Nonlinear Dynamics and Econometrics, 25 (1). ISSN 1558-3708

Abstract

We compare local and global polynomial solution methods for DSGE models with Epstein- Zin-Weil utility. We show that model implications for macroeconomic quantities are relatively invariant to choice of solution method but that a global method can yield substantial improvements for asset prices and welfare costs. The divergence in solution quality is highly dependent on parameters which affect value function sensitivity to TFP volatility, as well as the magnitude of TFP volatility itself. This problem is pronounced for calibrations at the extreme of those accepted in the asset pricing literature and disappears for more traditional macroeconomic parameterizations.

More Details

Item Type: Article
Subject Areas: Finance
Additional Information:

© 2020 Walter de Gruyter GmbH

Date Deposited: 29 Jan 2020 15:26
Subjects: Pricing
Assets
Nonlinear programming
Last Modified: 05 Nov 2024 02:47
URI: https://lbsresearch.london.edu/id/eprint/1347
More

Export and Share


Download

Full text not available from this repository.

Statistics

Altmetrics
View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item