TY  - RPRT
A1  - Branger, Nicole
A1  - Kraft, Holger
A1  - Meinerding, Christoph
T1  - Pricing two trees when mildew infests the orchard: how does contagion affect general equilibrium asset prices : [version: March 11, 2011]
N2  - This paper analyzes the equilibrium pricing implications of contagion risk in a two-tree Lucas economy with CRRA preferences. The dividends of both trees are subject to downward jumps. Some of these jumps are contagious and increase the risk of subsequent jumps in both trees for some time interval. We show that contagion risk leads to large price-dividend ratios for small assets, a joint movement of prices in the case of a regime change from the calm to the contagion state, significantly positive correlations between assets, and large positive betas for small assets. Whereas disparities between the assets with respect to their propensity to trigger contagion barely matter for pricing, the prices of robust assets that are hardly affected by contagion and excitable assets that are severely hit by contagion differ significantly. Both in absolute terms and relatively to the market, the price of a small safe haven increases if the economy reaches the contagion state. On the contrary, the price of a small, contagion-sensitive asset exhibits a pronounced downward jump.
KW  - Contagion
KW  - General Equilibrium
KW  - Asset Pricing
Y1  - 2011
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/34701
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-347010
UR  - http://www.ecb.europa.eu/events/pdf/conferences/ws_asset/sess1/Branger-Kraft-Meinerding.pdf
IS  - version: March 11, 2011
EP  - 49
ER  -