Incomplete Information and Heterogeneous Beliefs in Continuous-time Finance

1 Incomplete Information: An Overview.- 1.1 Introduction.- 1.2 Portfolio Choice.- 1.2.1 Gennotte’s Model.- 1.2.2 The Inference Process.- 1.2.3 Optimal Portfolio Choice.- 1.2.4 An Example.- 1.2.5 The Short Interest Rate.- 1.3 The Term Structure of Interest Rates.- 1.3.1 Dothan and Feldman’s Models.- 1.3.2 A Characterization of the Term Structure.- 1.4 Equilibrium Asset Pricing.- 1.4.1 Honda’s Model.- 1.4.2 The Equilibrium Price Process.- 1.5 Conclusion and Outlook.- 2 The Impact of Incomplete Information on Utility, Prices, and Interest Rates.- 2.1 Introduction.- 2.2 The Model.- 2.3 Equilibrium.- 2.3.1 The Equilibrium Expected Lifetime Utility.- 2.3.2 The Equilibrium Price.- 2.3.3 The Equilibrium Interest Rate.- 2.4 Logarithmic Utility.- 2.4.1 The Equilibrium Expected Lifetime Utility.- 2.4.2 The Equilibrium Price.- 2.4.3 The Equilibrium Interest Rate.- 2.5 Power Utility.- 2.5.1 The Equilibrium Expected Lifetime Utility.- 2.5.2 The Equilibrium Price.- 2.5.3 The Equilibrium Interest Rate.- 2.5.4 Hedging Demand and the Equilibrium Price of Estimation Risk.- 2.6 Information, Utility, Prices, and Interest Rates: A Synthesis.- 2.6.1 Expected Lifetime Utility.- 2.6.2 Share Prices.- 2.6.3 Interest Rates.- 2.7 Time-Varying Parameters.- 2.7.1 The Equilibrium Expected Lifetime Utility.- 2.7.2 The Equilibrium Price.- 2.7.3 The Equilibrium Interest Rate.- 2.8 Conclusion.- 3 Optimal Portfolio Choice Under Heterogeneous Beliefs.- 3.1 Introduction.- 3.2 The Model.- 3.3 The Deviant Agent’s Problem.- 3.4 Optimal Portfolio Choice.- 3.5 An Example.- 3.6 Conclusion.- 4 Optimal Consumption Under Heterogeneous Beliefs.- 4.1 Introduction.- 4.2 The Cox-Huang Methodology.- 4.3 Heterogeneous Beliefs.- 4.4 An Example.- 4.4.1 The Model.- 4.4.2 Optimal Consumption Patterns Under Heterogeneous Beliefs.- 4.4.3 An Algebraic Solution.- 4.4.4 The Effect of the Time Horizon.- 4.5 Portfolios and Consumption: A Synthesis.- 4.6 Conclusion.- 5 Equilibrium Asset Pricing Under Heterogeneous Beliefs.- 5.1 Introduction.- 5.2 The Model.- 5.3 Equilibrium Consumption.- 5.4 Equilibrium Prices.- 5.4.1 The Equilibrium State-Price Density.- 5.4.2 The Equilibrium Short Rate.- 5.4.3 The Equilibrium Yield Curve.- 5.4.4 The Equilibrium Share Price.- 5.4.5 Equilibrium Option Prices and the “Smile Effect”.- 5.5 Implied Risk Aversion.- 5.6 Conclusion.- 6 Costly Information, Imperfect Learning, and Information Aggregation.- 6.1 Introduction.- 6.2 The Model.- 6.2.1 The Economy.- 6.2.2 The Inference Process: Imperfect Learning.- 6.3 Portfolio Choice under Costly Information.- 6.3.1 The Agent’s Problem.- 6.3.2 The Agent’s Optimal Investment and Research Policy.- 6.3.3 Determinants of the Demand for Information.- 6.3.4 Diversification and Information Costs.- 6.4 Equilibrium Asset Pricing.- 6.5 Information Aggregation and the Equity Premium.- 6.6 Conclusion.- 7 Summary and Conclusion.- C The Short Rate Under Heterogeneous Beliefs.- References.- List of Figures.- List of Tables.- List of Symbols.