Dr. Johannes Muhle-Karbe, University Michigan: "Equilibrium Liquidity Premia"
In a continuous-time model with mean-variance investors and quadratic transaction costs, we show that the equilibrium expected return can be characterized as the solution of a system of coupled but linear forward-backward stochastic differential equations. Explicit formulas obtain in the small-cost limit, which allow to assess the comparative statics of equilibrium liquidity premia. (Joint work with Masaaki Fukasawa and Martin Herdegen)
Einladender: J. Kallsen