An Extension of Good-Deal Asset Price Bounds

Iñaki R. Longarela ()
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Iñaki R. Longarela: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

No 448, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: In a two-period setup we develop a generalization of good-deal bounds that allows to include in the problem the implications of asset pricing models. Our basis is the distance behind Hansen and Jagannathan's measure of model misspecification since a volatility constraint on the stochastic discount factor is a particular case of a restriction on this distance. We also present an alternative approach which mostly retains the economic interpretation underlying the above extension and it has a very useful property since the resulting bounds can be computed by simply solving a linear program.

Keywords: generalized good-deal bounds; L1-norm methods (search for similar items in EconPapers)
JEL-codes: C63 G12 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2001-05-21, Revised 2001-10-19
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: The previous version of this working paper had the title "A New Approach to the Derivation of Asset Price Bounds".
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0448

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