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Solving asset pricing models with Gaussian shocks

✍ Scribed by Craig Burnside

Publisher
Elsevier Science
Year
1998
Tongue
English
Weight
566 KB
Volume
22
Category
Article
ISSN
0165-1889

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✦ Synopsis

This paper provides a closed-form solution for the price-dividend ratio in a standard asset pricing model when the growth rate of the endowment is a first-order Gaussian autoregression.

It determines the conditions under which this solution is bounded. The findings are useful in allowing comparisons among numerical methods used to approximate the nontrivial closed-form. The solution method is extended to accommodate multivariate and higher-ordered autoregressive processes.

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