This is a thoroughly updated edition of Dynamic Asset Pricing Theory, the standard text for
doctoral students and researchers on the theory of asset pricing and portfolio selection in …

We prove existence of equilibrium in a continuous‐time securities market in which the
securities are potentially dynamically complete: the number of securities is at least one more …

Many stockholders irrationally believe that high recent stock market returns predict high
future stock market returns. The presence of these extrapolators can help resolve the equity …

We compare the performance of the perturbation-based (local) portfolio solution method of
Devereux & Sutherland (2010a, 2011) with a global solution method. As a test suite we use …

Trading volume of infinitely lived securities, such as equity, is generically zero in Lucas asset
pricing models with heterogeneous agents. More generally, the end‐of‐period portfolio of all …

Because of non‐traded human capital, real‐world financial markets are massively
incomplete, while the modeling of imperfect, dynamic financial markets remains a wide …

We introduce our GDSGE framework and a novel global solution method, called
simultaneous transition and policy function iterations (STPFIs), for solving dynamic …

We present an intuitive homotopy algorithm for the computation of equilibria in the general
equilibrium model with incomplete asset markets. The central concept is the introduction of …

The ability to issue debt that pays in units of the domestic good leads a country to
accumulate a large and negative net foreign asset position while maintaining a positive …

The paper presents a method for the recursive computation of models with a continuum of
heterogeneous agents. Following the literature, it is assumed that the cross-sectional …