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A Dynamic Asset Pricing Model with Non-myopic Traders

Author

Listed:
  • Zhao Han

    (Department of Economics, Indiana University-Bloomington)

Abstract

Dynamic asset pricing models built within the classic CARA-Normal framework usually assume myopic traders with one-period investment horizons or infinitely lived investors for tractability. I relax this myopic assumption and show the values of more finite trading opportunities are state-contingent and arise naturally as non-central $chi^2$-distributed. The moment generating function of the non-central $chi^2$ distribution thus can be utilized to derive the traders' first order conditions and preserve closed-form solutions. The model with non-myopic traders has a modified two-period overlapping generations(OLG) interpretation in which each young generation can have multiple investment opportunities.

Suggested Citation

  • Zhao Han, 2015. "A Dynamic Asset Pricing Model with Non-myopic Traders," Economics Bulletin, AccessEcon, vol. 35(3), pages 1788-1794.
    • Handle: RePEc:ebl:ecbull:eb-15-00400
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Investment Horizons; Non-central $chi^2$ Distribution; Overlapping Generations Model;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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