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.