| Abstract: |
| We study an asset pricing problem in which a representative agent trades a risky stock, a risk-free asset, and human capital to maximize her preference value of consumption represented by the $\alpha$-maxmin expected utility model. This preference model is known to lead to time inconsistency, so we consider intra-personal equilibrium for the representative agent and define the market equilibrium to the set of asset prices under which the intra-personal equilibrium strategy clears the market. We prove that there exists a unique market equilibrium and the asset prices are determined by the solution to a second-order ordinary differential equation. Finally, we conduct comparative statics to study the effect of the agent`s ambiguity attitude on the asset prices.
This is a joint work with Jiacheng Fan and Ruocheng Wu. |
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