Abstract
The purpose of this chapter1 is to derive the implications of non-constant elasticity of the pricing kernel on asset returns We wish to keep the analysis as general as possible and therefore we avoid a parameterization of the pricing kernel The results are thus purely qualitative, a quantification of the implications is presented in the following chapter.
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Notes
This Chapter is based on Lüders [131].
This follows from the Theorem of Feynman Kac.
See also the discussion on p 26.
See p 26 of this monograph.
See for example Andersen, Bollerslev, Diebold and Ebens [4], Hentschel [93], Mayhew and Stivers [135], and Tauchen, Zhang and Liu [182].
For an overview on the estimation of diffusion models see Gourieroux and Jasiak [85] A recent development on the estimation of diffusion processes is found in Elerian, Chib and Shephard [59].
For an overview of the empirical evidence of the predictive power of financial ratios see also Chap 4.
Note that we define periods such that their length is 1 This simplifies the notation. We assume that T ≫ 1.
For a more detailed discussion see for example Ohlson [152] and Hess and Lüders [94].
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© 2004 Springer-Verlag Berlin Heidelberg
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Lüders, E. (2004). Asset Returns with Non-Constant Elasticity of the Pricing Kernel. In: Economic Foundation of Asset Price Processes. ZEW Economic Studies, vol 24. Physica, Heidelberg. https://doi.org/10.1007/978-3-7908-2660-9_5
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DOI: https://doi.org/10.1007/978-3-7908-2660-9_5
Publisher Name: Physica, Heidelberg
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