Linearity-Generating Processes: A Modelling Tool Yielding Closed Forms for Asset Prices / Xavier Gabaix.

Format:

Book

Author/Creator:

Gabaix, Xavier.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13430.

NBER working paper series no. w13430

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Linearity-Generating Processes

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

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.

Notes:

Print version record

September 2007.