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https://hdl.handle.net/2440/73750
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Type: | Journal article |
Title: | Asset pricing using finite state Markov chain stochastic discount functions |
Author: | Van Der Hoek, J. Elliott, R. |
Citation: | Stochastic Analysis and Applications, 2012; 30(5):865-894 |
Publisher: | Marcel Dekker Inc |
Issue Date: | 2012 |
ISSN: | 0736-2994 1532-9356 |
Statement of Responsibility: | John van der Hoek and Robert J. Elliott |
Abstract: | This article fuses two pieces of theory to make a tractable model for asset pricing. The first is the theory of asset pricing using a stochastic discounting function (SDF). This will be reviewed. The second is to model uncertainty in an economy using a Markov chain. Using the semi-martingale dynamics for the chain these models can be calibrated and asset valuations derived. Interest rate models, stock price models, futures pricing, exchange rates can all be introduced endogenously in this framework. |
Keywords: | Continuous time Markov chains derivative asset pricing stochastic discounting functions |
Rights: | Copyright © Taylor & Francis Group, LLC |
DOI: | 10.1080/07362994.2012.704852 |
Published version: | http://dx.doi.org/10.1080/07362994.2012.704852 |
Appears in Collections: | Aurora harvest 4 Mathematical Sciences publications |
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