An Extension of Good-Deal Asset Price Bounds
AbstractIn a two-period setup we develop a generalization of good-deal bounds that allows to include in the problem the implications of asset pricing models. Our basis is the distance behind Hansen and Jagannathan's measure of model misspecification since a volatility constraint on the stochastic discount factor is a particular case of a restriction on this distance. We also present an alternative approach which mostly retains the economic interpretation underlying the above extension and it has a very useful property since the resulting bounds can be computed by simply solving a linear program.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 0448.
Length: 20 pages
Date of creation: 21 May 2001
Date of revision: 19 Oct 2001
Note: The previous version of this working paper had the title "A New Approach to the Derivation of Asset Price Bounds".
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generalized good-deal bounds; L1-norm methods;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-06-08 (All new papers)
- NEP-FIN-2001-06-08 (Finance)
- NEP-FMK-2001-06-08 (Financial Markets)
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- HENROTTE, Philippe, 2002. "Pricing kernels and dynamic portfolios," Les Cahiers de Recherche 768, HEC Paris.
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