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Stability of Equilibrium Asset Pricing Models: A Necessary and Sufficient Condition

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  • Jaroslav Borovicka
  • John Stachurski

Abstract

We obtain an exact necessary and sufficient condition for the existence and uniqueness of equilibrium asset prices in infinite horizon, discrete-time, arbitrage free environments. Through several applications we show how the condition sharpens and improves on previous results. We connect the condition, and hence the problem of existence and uniqueness of asset prices, with the recent literature on stochastic discount factor decompositions. Finally, we discuss computation of the test value associated with our condition, providing a Monte Carlo method that is naturally parallelizable.

Suggested Citation

  • Jaroslav Borovicka & John Stachurski, 2019. "Stability of Equilibrium Asset Pricing Models: A Necessary and Sufficient Condition," Papers 1910.00778, arXiv.org, revised Feb 2021.
    • Handle: RePEc:arx:papers:1910.00778
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    References listed on IDEAS

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    3. Horvath, Ferenc, 2025. "Arbitrage-based recovery," Journal of Financial Economics, Elsevier, vol. 163(C).

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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