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Closed-Form Solutions to Dynamic Stochastic Choice Problems

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  • Farmer, Roger

Abstract

This paper introduces a parametric class of Freps preferences that yield closed form solutions to dynamic stochastic choice problems. These preferences are applied to a simple stochastic macroeconomic model which relaxes the representative agent assumption. This example is designed to illustrate one of the many possible ways in which these preferences may be useful to both theoretical and applied researchers.

Suggested Citation

  • Farmer, Roger, 1987. "Closed-Form Solutions to Dynamic Stochastic Choice Problems," The Warwick Economics Research Paper Series (TWERPS) 282, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:282
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/1978-1988/twerp282.pdf
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    Cited by:

    1. Weil, Philippe, 1989. "The equity premium puzzle and the risk-free rate puzzle," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 401-421, November.
    2. Alberto Giovannini & Philippe Jorion, 1988. "The Time-Variation of Risk and Return in the Foreign Exchange and Stock Markets," NBER Working Papers 2573, National Bureau of Economic Research, Inc.

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