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Risk Price Dynamics

Author

Listed:
  • Lars Peter Hansen

    () (The University of Chicago)

  • Jaroslav BoroviÄ ka

    (New York University)

  • Mark Hendricks

    (University of Chicago)

  • José A. Scheinkman

    (Columbia University)

Abstract

We present a novel approach to depicting asset pricing dynamics by characterizing shock exposures and prices for alternative investment horizons. We quantify the shock exposures in terms of elasticities that measure the impact of a current shock on future cash-flow growth. The elasticities are designed to accommodate nonlinearities in the stochastic evolution modeled as a Markov process. Stochastic growth in the underlying macroeconomy and stochastic discounting in the representation of asset values are central ingredients in our investigation. We provide elasticity calculations in a series of examples featuring consumption externalities, recursive utility, and jump risk.

Suggested Citation

  • Lars Peter Hansen & Jaroslav BoroviÄ ka & Mark Hendricks & José A. Scheinkman, 2010. "Risk Price Dynamics," Working Papers 2010-004, Becker Friedman Institute for Research In Economics.
  • Handle: RePEc:bfi:wpaper:2010-004
    as

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    File URL: https://econresearch.uchicago.edu/sites/econresearch.uchicago.edu/files/BFI_2010-004.pdf
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    Other versions of this item:

    • Jaroslav Borovicka & Lars Peter Hansen & Mark Hendricks & Jose A. Scheinkman, 2009. "Risk Price Dynamics," Working Papers 1393, Princeton University, Department of Economics, Econometric Research Program..
    • Jaroslav Borovička & Lars Peter Hansen & Mark Hendricks & José A. Scheinkman, 2009. "Risk Price Dynamics," NBER Working Papers 15506, National Bureau of Economic Research, Inc.

    References listed on IDEAS

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

    More about this item

    Keywords

    growth-rate risk; pricing; dynamics; elasticities; Markov process;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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