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A Model For Pricing Stocks and Bonds

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  • Harry Mamaysky
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    Abstract

    This paper develops a tractable, dynamic, arbitrage-free model capable of jointly pricing a cross section of bonds and stocks. The bond pricing portion of the model produces the standard affine term-structure equations. It is then shown that a particular choice of dividend process, characterized by affine dividend yields, leads to stock prices that are exponential affine in the model's state variables. Importantly, the model allows for quite general interdependence between bond and stock prices. The paper also shows that an alternative modeling strate

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    File URL: http://icfpub.som.yale.edu/publications/2398
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    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm279.

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    Date of creation: 01 Apr 2002
    Date of revision: 01 Jun 2002
    Handle: RePEc:ysm:somwrk:ysm279

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    Web page: http://icf.som.yale.edu/
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    Cited by:
    1. Francis Longstaff & Monika Piazzesi, 2003. "Corporate Earnings and the Equity Premium," NBER Working Papers 10054, National Bureau of Economic Research, Inc.
    2. Longstaff, Francis & Piazzesi, Monika, 2002. "Corporate Earnings and the Equity Premium," University of California at Los Angeles, Anderson Graduate School of Management qt3qn115m4, Anderson Graduate School of Management, UCLA.
    3. Xavier Gabaix, 2007. "Linearity-Generating Processes: A Modelling Tool Yielding Closed Forms for Asset Prices," NBER Working Papers 13430, National Bureau of Economic Research, Inc.

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