Imperfect information and investor heterogeneity in the bond market (Q1571126)

This bock focuses on equilibrium models, in which bond prices are determined endogenously. It has four chapters. Chapter 1 regards imperfect information and complete asset markets in continuous time. Chapter 2 treats heterogeneous time preferences: the preferred habitat theory revisited. Chapter 3 describes the imperfect information: the term structure when the growth rate is unknown. Finally, in chapter 4 bulls and bears: heterogeneous expectations are treated. Chapter 1 (Imperfect information and complete asset markets in continuous time) regards after the introduction a competitive financial market with imperfect information. It follows the martingale representation theorem for innovation processes. Then, the existence of an Arrow-Debreu equilibrium, Pareto efficiency, and the representative agent are treated. It follows the completeness of the market and the existence of a financial equilibrium. This chapter ends with pricing redundant securities and the term structure of interest rates. Chapter 2 (Heterogeneous time preferences -- the habitat theory revisited) begins with the modelling of preferred habitat time preferences. It follows a model with heterogeneous time preferences, equilibrium, analysis of the term structure, and ends with the demand for long term bonds. Chapter 3 (Imperfect information: The term structure when the growth rate is unknown) describes the model, estimates the drift, treats the equilibrium with perfect and imperfect information, the yield curve with normal and Bernoulli prior beliefs, and ends with the general prior beliefs. Chapter 4 (Bulls and bears: Heterogeneous expectations) begins with setup, the equilibrium, and ends with two examples (unobservable constant drift and stationary unobservable drift).