Seminar: Asset Pricing with Heterogenous Beliefs and Illiquidity


Department of Systems Engineering and Engineering Management
                    The Chinese University of Hong Kong

Title: Asset Pricing with Heterogenous Beliefs and Illiquidity
Speaker: Johannes Muhle-Karbe
                Department of Mathematics
                Imperial College London
Abstract: We study the equilibrium price of an asset that is traded in continuous time between N agents who have heterogeneous beliefs about the state process underlying the asset's payoff. We propose a tractable model where agents maximize expected returns under quadratic costs on inventories and trading rates. The unique equilibrium price is characterized by a weakly coupled system of linear parabolic equations which shows that holding and liquidity costs play dual roles. We derive the leading-order asymptotics for small transaction and holding costs which give further insight into the equilibrium and the consequences of illiquidity. 
Thursday, April 9, 2020 - 17:30