Bubbles as payoffs at infinity

Christian Gilles and Stephen LeRoy

No 96-9, 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: capital asset pricing model; Money market (search for similar items in EconPapers)
Date: 1996
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Related works:
Working Paper: Bubbles as Payoffs at Infinity (2019)
Journal Article: Bubbles as payoffs at infinity (*) (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:96-9

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