Risk-price dynamics

Jaroslav Borovicka, Lars Peter Hansen, Mark Hendricks, José A. Scheinkman

    Research output: Contribution to journalArticle

    Abstract

    We present a novel approach to depicting asset-pricing dynamics by characterizing shock exposures and prices for alternative investment horizons. We quantify the shock exposures in terms of elasticities that measure the impact of a current shock on future cash flow growth. The elasticities are designed to accommodate nonlinearities in the stochastic evolution modeled as a Markov process. Stochastic growth in the underlying macroeconomy and stochastic discounting in the representation of asset values are central ingredients in our investigation. We provide elasticity calculations in a series of examples featuring consumption externalities, recursive utility, and jump risk.

    Original languageEnglish (US)
    Article numbernbq030
    Pages (from-to)3-65
    Number of pages63
    JournalJournal of Financial Econometrics
    Volume9
    Issue number1
    DOIs
    StatePublished - Jan 2011

    Fingerprint

    Elasticity
    Price dynamics
    Alternative investments
    Jump risk
    Nonlinearity
    Cash flow
    Asset pricing
    Stochastic growth
    Asset value
    Investment horizon
    Recursive utility
    Consumption externalities
    Discounting
    Markov process
    Macroeconomy

    Keywords

    • Dynamics
    • Elasticities
    • Growth-rate risk
    • Markov process
    • Pricing

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    Borovicka, J., Hansen, L. P., Hendricks, M., & Scheinkman, J. A. (2011). Risk-price dynamics. Journal of Financial Econometrics, 9(1), 3-65. [nbq030]. https://doi.org/10.1093/jjfinec/nbq030

    Risk-price dynamics. / Borovicka, Jaroslav; Hansen, Lars Peter; Hendricks, Mark; Scheinkman, José A.

    In: Journal of Financial Econometrics, Vol. 9, No. 1, nbq030, 01.2011, p. 3-65.

    Research output: Contribution to journalArticle

    Borovicka, J, Hansen, LP, Hendricks, M & Scheinkman, JA 2011, 'Risk-price dynamics', Journal of Financial Econometrics, vol. 9, no. 1, nbq030, pp. 3-65. https://doi.org/10.1093/jjfinec/nbq030
    Borovicka J, Hansen LP, Hendricks M, Scheinkman JA. Risk-price dynamics. Journal of Financial Econometrics. 2011 Jan;9(1):3-65. nbq030. https://doi.org/10.1093/jjfinec/nbq030
    Borovicka, Jaroslav ; Hansen, Lars Peter ; Hendricks, Mark ; Scheinkman, José A. / Risk-price dynamics. In: Journal of Financial Econometrics. 2011 ; Vol. 9, No. 1. pp. 3-65.
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