An economic premium principle in a multiperiod economy. (Q1413269)

The authors consider a discrete-time consumption/portfolio model of a financial market. It is shown that, under certain technical conditions, an optimal consumption/portfolio process for each agent exists and that the state price density in an equilibrium can be obtained under the market clearing condition in terms of the Arrow-Pratt index of absolute risk aversion for the representative agent. Additionally, special cases of power and exponential utility functions, where the state price density is expressed in terms of the aggregate net income and the parameter of the utility functions, and some comparative statics results are presented.