On Viable Diffusion Price Processes of the Market Portfolio

Avi Bick

Journal of Finance, 1990, vol. 45, issue 2, 673-89

Abstract: The assumption that the market portfolio follows a specified diffusion process implies, in a simple equilibrium framework, that the representative individual must have a certain utility function that is identified in the paper. Not every diffusion process is viable, i.e., can be "endogenized" to be the market portfolio's price process in such an equilibrium model. The paper provides necessary and sufficient conditions for viability that imply that viable diffusion processes constitute a rather restricted family. Copyright 1990 by American Finance Association.

Date: 1990
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