Shock elasticities and impulse responses

Jaroslav Borovicka, Lars Peter Hansen, José A. Scheinkman

    Research output: Contribution to journalArticle

    Abstract

    We construct shock elasticities that are pricing counterparts to impulse response functions. Recall that impulse response functions measure the importance of next-period shocks for future values of a time series. Shock elasticities measure the contributions to the price and to the expected future cash flow from changes in the exposure to a shock in the next period. They are elasticities because their measurements compute proportionate changes. We show a particularly close link between these objects in environments with Brownian information structures.

    Original languageEnglish (US)
    Pages (from-to)333-354
    Number of pages22
    JournalMathematics and Financial Economics
    Volume8
    Issue number4
    DOIs
    StatePublished - 2014

    Fingerprint

    Impulse Response
    Elasticity
    Shock
    Impulse Response Function
    Information Structure
    Pricing
    Time series
    Impulse response
    Impulse response function

    Keywords

    • Malliavin derivative
    • Markov dynamics
    • Nonlinear impulse response functions
    • Risk pricing
    • Shock elasticities

    ASJC Scopus subject areas

    • Finance
    • Statistics and Probability
    • Statistics, Probability and Uncertainty

    Cite this

    Shock elasticities and impulse responses. / Borovicka, Jaroslav; Hansen, Lars Peter; Scheinkman, José A.

    In: Mathematics and Financial Economics, Vol. 8, No. 4, 2014, p. 333-354.

    Research output: Contribution to journalArticle

    Borovicka, J, Hansen, LP & Scheinkman, JA 2014, 'Shock elasticities and impulse responses', Mathematics and Financial Economics, vol. 8, no. 4, pp. 333-354. https://doi.org/10.1007/s11579-014-0122-4
    Borovicka, Jaroslav ; Hansen, Lars Peter ; Scheinkman, José A. / Shock elasticities and impulse responses. In: Mathematics and Financial Economics. 2014 ; Vol. 8, No. 4. pp. 333-354.
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