----------------------------------------------------------------------------------------------------

         Department of Systems Engineering and Engineering Management

                             The Chinese University of Hong Kong

----------------------------------------------------------------------------------------------------



Date: 4:30pm - 5:30pm on 25 September (Thursday)

Venue: ERB 513, The Chinese University of Hong Kong

Title: General Equilibrium with Unhedgeable Fundamentals and

Heterogeneous Agents

Speaker: Marko Weber, Mathematical Finance, National University of

Singapore



Abstract:

This paper examines the implications of unhedgeable fundamental risk,

combined with agents' heterogeneous preferences and wealth allocations,

on dynamic asset pricing and portfolio choice.

We solve in closed form a continuous-time general equilibrium model in

which unhedgeable fundamental risk affects aggregate consumption

dynamics, rendering the market incomplete. Several long-lived agents

with heterogeneous risk-aversion and time-preference make consumption

and investment decisions, trading risky assets and borrowing from and

lending to each other.  We find that a representative agent does not

exist. Agents trade assets dynamically. Their consumption rates depend

on the history of unhedgeable shocks. Consumption volatility is higher

for agents with preferences and wealth allocations deviating more from

the average.

Unhedgeable risk reduces the equilibrium interest rate only through

agents' heterogeneity and proportionally to the cross-sectional variance

of agents' preferences and allocations.



Biography:

Marko Weber is an Assistant Professor in Mathematical Finance at the

National University of Singapore. His research focuses on equilibrium

asset pricing in incomplete markets, systemic risk, and portfolio choice

with market frictions. He holds a PhD from Scuola Normale Superiore and

is the recipient of the 2015 Bruti Liberati prize. Before joining NUS,

he worked as a postdoctoral researcher at Columbia University and as an

associate at J.P. Morgan in London.