Shaliastovich, IvanTauchen, George2023-05-222023-05-222011-01-012016-06-09https://repository.upenn.edu/handle/20.500.14332/34418We develop an equilibrium endowment economy with Epstein–Zin recursive utility and a Lévy time-change subordinator, which represents a clock that connects business and calendar time. Our setup provides a tractable equilibrium framework for pricing non-Gaussian jump-like risks induced by the time-change, with closed-form solutions for asset prices. Persistence of the time-change shocks leads to predictability of consumption and dividends and time-variation in asset prices and risk premia in calendar time. In numerical calibrations, we show that the risk compensation for Lévy risks accounts for about one-third of the overall equity premium.© 2011. This manuscript version is made available under the CC-BY-NC-ND 4.0 license (http://creativecommons.org/licenses/by-nc-nd/4.0/)FinanceFinance and Financial ManagementArticle