Ergodicity, State Prices, and Long Bond Returns

Anthony Tessitore and Nilufer Usmen

Mathematical Finance, 1998, vol. 8, issue 1, 85-91

Abstract: We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long‐horizon discount bond.

Date: 1998
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