Existence and Uniqueness of Recursive Utility Models in $L_p$
Abstract
Recursive preferences, of the sort developed by Epstein and Zin (1989), play an integral role in modern macroeconomics and asset pricing theory. Unfortunately, it is non-trivial to establish the unique existence of a solution to recursive utility models. We show that the tightest known existence and uniqueness conditions can be extended to (i) Schorfheide, Song and Yaron (2018) recursive utilities and (ii) recursive utilities with `narrow framing'. Further, we sharpen the solution space of Borovicka and Stachurski (2019) from to so that the results apply to a broader class of modern asset pricing models. For example, using Hilbert space theory, we find the class of parameters which generate a unique solution to the Bansal and Yaron (2004) and Schorfheide, Song and Yaron (2018) models.
Keywords
Cite
@article{arxiv.2005.07067,
title = {Existence and Uniqueness of Recursive Utility Models in $L_p$},
author = {Flint O'Neil},
journal= {arXiv preprint arXiv:2005.07067},
year = {2020}
}