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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26292
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| Title: | Linearity-Generating Processes: A Modelling Tool Yielding Closed Forms
for Asset Prices |
| Authors: | Gabaix, Xavier |
| Keywords: | Modified Gordon growth model
Stochastic Discount Factor
Long term risk
Interest rate processes
Bond premia
Equity Premium |
| Issue Date: | 10-Sep-2007 |
| Series/Report no.: | FIN-07-006 |
| Abstract: | This methodological paper presents a class of stochastic processes with
appealing properties for theoretical or empirical work in finance and
macroeconomics, the “linearity-generating” class. Its key
property is that it yields simple exact closed-form expressions for
stocks and bonds, with an arbitrary number of factors. It operates in
discrete and continuous time. It has a number of economic modeling
applications. These include macroeconomic situations with changing trend
growth rates, or stochastic probability of disaster, asset pricing with
stochastic risk premia or stochastic dividend growth rates, and yield
curve analysis that allows flexibility and transparency. Many research
questions may be addressed more simply and in closed form by using the
linearity-generating class. |
| URI: | http://hdl.handle.net/2451/26292 |
| Appears in Collections: | Finance Working Papers
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