We develop an infinite-horizon continuous-time incomplete-markets economy in which households face uninsurable idiosyncratic income risk and aggregate risk and invest through a financial intermediary sector. The intermediary’s relative wealth endogenously drives risk premia, and return volatility, generating two-way feedback loops between asset returns and the wealth distribution.
I develop a continuous-time entrepreneurial finance model in which a risk-averse entrepreneur and competitive financiers are jointly robust to unspanned idiosyncratic uncertainty from technology adoption. Robustness shapes adoption, consumption-portfolio, and debt policy, determining state-dependent security valuation and endogenous default.
Published in Journal of Banking and Finance, 2022
This paper examines the impact of loan-loss provisioning (LLP) regulation on the mortgage lending market. Using administrative data, we find that, in Chile, LLP reduced loan-to-value ratios while having minimal effects on interest rates, suggesting that banks adjust lending standards beyond pricing strategies.