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Mathematical Finance and Probability Seminars

Resolving Asset Pricing Puzzles with Price Impact

Xiao Chen- Rutgers University

Location:  Hill 425
Date & time: Tuesday, 19 November 2019 at 11:50AM - 12:50PM

Abstract:  We solve in closed-form a Nash equilibrium model in which a finite number of exponential investors trade continuously with price-impact over a finite time horizon. By comparing our continuous-time Nash equilibrium model to the otherwise identical  competitive Radner equilibrium model, we show that our Nash equilibrium model with price-impact can simultaneously help resolve the interest rate puzzle, the equity premium puzzle, and the stock volatility puzzle.

Joint work with Jin Hyuk Choi, Kasper Larsen, and Duane J. Seppi.