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Asset Prices and Alternative Characterizations of the Pricing Kernel

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  • Lüders, Erik
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    Abstract

    In a continuous-time representative investor economy with an exogenously given information process, asset prices are derived for alternative characterizations of the pricing kernel. In addition to the characterization of forward prices in a general representative investor economy a detailed analysis of forward prices for the HARA-class is given. In particular, analytical and numerical solutions of forward prices are derived for a representative investor with non-constant relative risk aversion. The derived asset prices are consistent with empirically well documented characteristics as mean reversion and random volatility. Hence, they are viable alternatives to the geometric Brownian motion. --

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    Bibliographic Info

    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 02-10.

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    Date of creation: 2002
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    Handle: RePEc:zbw:zewdip:887

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    Keywords: equilibrium price processes; displaced diffusion process; random volatility; mean-reversion;

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    Cited by:
    1. Lüders, Erik & Schröder, Michael, 2004. "Modeling Asset Returns: A Comparison of Theoretical and Empirical Models," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 04-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Lüders, Erik, 2002. "Why Are Asset Returns Predictable?," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 02-48, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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