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dc.contributor.authorGabaix, Xavier-
dc.description.abstractThis 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.en
dc.subjectModified Gordon growth modelen
dc.subjectStochastic Discount Factoren
dc.subjectLong term risken
dc.subjectInterest rate processesen
dc.subjectBond premiaen
dc.subjectEquity Premiumen
dc.titleLinearity-Generating Processes: A Modelling Tool Yielding Closed Forms for Asset Pricesen
dc.typeWorking Paperen
Appears in Collections:Finance Working Papers

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