Asset Prices and Alternative Characterizations of the Pricing Kernel

Erik Lüders

No 02-10, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: In a continuous-time representative investor economy with an exogenously given information process, asset prices are derived for alternative characterizations of the pricing kernel. In addition to the characterization of forward prices in a general representative investor economy a detailed analysis of forward prices for the HARA-class is given. In particular, analytical and numerical solutions of forward prices are derived for a representative investor with non-constant relative risk aversion. The derived asset prices are consistent with empirically well documented characteristics as mean reversion and random volatility. Hence, they are viable alternatives to the geometric Brownian motion.

Keywords: equilibrium price processes; displaced diffusion process; random volatility; mean-reversion (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:887

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