Multidimensional robust control, uncertainty and finance / Multidimensional robust control, uncertainty and finance

AUTOR(ES)
DATA DE PUBLICAÇÃO

2006

RESUMO

Optimal control theory has being a source of useful tools (including Euler equations, ztransforms, lag operators, Bellman equations, Kalman filtering) to study dynamic economics problems. A more recent field of optimal control, namely robust control, has recently been adopted by some leading economists (Thomas Sargent, Lars Hansen and coauthors) to study important problems in economics where there is a concern about model misspecification. With such new feature one can disentangle the concepts of risk aversion and (Knightian) uncertainty aversion and get some hope to explain famous empirical puzzles. The majority of current models that take into consideration the fear of model misspecifications work with a single representation for uncertainty. This dissertation aims at building a bidimensional robust pricing model by allowing for two free parameters related to the fear of model misspecification. Both parameters may be linked to the discount rate and to the elasticity of intertemporal substitution not necessarily with a bijective mapping. This approach allows for a full explanation of the equity premium puzzle and the risk-free rate puzzle. This bi-dimensional treatment is a step in trying to show the necessary multidimensionality of the representation of economic uncertainty. As a by-product we define a new concept, the Multifactor Price of Knightian Uncertainty (MFPU), that extends the classical Market Price of Risk (MPR) and Hansen and Sargents Market Price of Uncertainty (MPU). The main results of the dissertation show that a model with multidimensional representation of concern for model misspecification is a valuable tool for explaining asset pricing anomalies and, in some cases, it outperforms standard neoclassical financial models. This work is just part of the prolegomena of the research agenda of robustness concerns in economics and finance and shows some of its potential and weakness

ASSUNTO(S)

incerteza robust control erros de especificações de modelos econômicos economia controle robusto model misspecifications aversão ao risco risk aversion uncertainty

ACESSO AO ARTIGO

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