A Model For Pricing Stocks and Bonds
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
|Date of creation:||01 Apr 2002|
|Date of revision:||01 Jun 2002|
|Contact details of provider:|| Web page: http://icf.som.yale.edu/|
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