Bubbles as Payoffs at Infinity

Christian Gilles and Stephen LeRoy

No 1996-09, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We define rational bubbles to be securities with payoffs occurring in the infinitely distant future and investigate the behavior of bubble values. We extend our analysis to a setting of uncertainty. In an infinite-horizon arbitrage-free model of asset prices, we interpret the money market account as the value of a particular bubble; a similar interpretation holds for other assets related to the state-price deflator and to payoffs on bonds maturing in the distant future. We present three applications of this characterization of bubbles.

Keywords: Asset prices; money-market account; state-price deflator (search for similar items in EconPapers)
Pages: 30 pages
Date: 2019-12-10
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http://www.federalreserve.gov/pubs/feds/1996/199609/199609pap.pdf (application/pdf)

Related works:
Journal Article: Bubbles as payoffs at infinity (*) (1997)
Working Paper: Bubbles as payoffs at infinity (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:1996-09

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