Questions tagged [asset-pricing]
The branch of Finance that studies and models how specific assets (such as options, bonds and stocks) are priced.
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Budget constraint in Radner Sequential Trade Equilibria
Suppose that $q$ is a k-tuple vector of prices for the k assets whose quantities are given by the k-tuple $\theta$. I have just read that in the Radner Sequential Trade Equilibrium (not sure if this ...
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3answers
26 views
Did (or can) quantitative easing cause an “everything bubble”?
Wolfstreet claims that
It’s true that despite QE globally – not just in Japan – there has been relatively little consumer price inflation in the countries whose central banks perpetrated it. But it ...
6
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1answer
56 views
Does the Lucas (1978) asset pricing model feature complete markets?
The Lucas (1978) asset pricing model seems to be one of the workhorse models in finance / asset pricing models. It also seems to be the case that the environment, with claims to $n$ (exogenous) ...
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1answer
13 views
Ex-dividend (Asset Pricing)
I am reading some lecture notes on asset pricing, and they use the term "ex-dividend" price of an asset.
I googled and found that ex-dividend means the time between announcement and payment of a ...
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3answers
122 views
A question about Lagrange multiplier(when $\lambda=0$)
I need help in a maximization problem(finding the optimal investment portfolio).
where $R_s$ and $\Phi$ are $n$ by $1$, with other variables being scalars.
$C^s$ is consumption (or wealth) of an ...
3
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1answer
108 views
Show that the dividend price ratio is a ARMA(p, q) process
Let the log dividend growth evolve according to $\Delta d_{t+1} = \epsilon_{d, t+1}$ where $\epsilon_{d, t+1}$ is just white noise. Let the log returns be $r_{t+1} = x_t + y_t + \epsilon_{r, t+1}$ ...
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0answers
33 views
Terminal and annual surplus distribution in participating life insurance
I consider a participating life insurance contract which is fair if $P_0 = e^{-rT} \mathbb{E}^{\mathbb{Q}}\left[ L(T) \right)$ ($\mathbb{Q}$ denotes the risk-neutral measure), where $P_0$ is the ...
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2answers
66 views
Continuation value versus utility in asset pricing
Is there a difference between continuation value ($V_t$) and utility ($U_t$) except for a possible scaling / difference in units? My question refers to the consumption-based asset pricing literature.
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33 views
Consumption based asset pricing book with Epstein-Zin(-Weil)
Any advice for a book covering consumption based asset pricing in general and in particular also covers non-standard asset pricing models / utility functions such as Epstein-Zin(-Weil)?
Besides the ...
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1answer
8 views
How startup early valuation influence later funding stages?
Let's suppose that a startup raise his seed round with a 100k funding for 10% equity. The startup has a pre-money valuation of 1M.
Let's say that the startup, after 1 year, raise a Series A round. ...
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24 views
Policy rate and the mean of the stochastic discount factor: what is exogenous?
Let us fix the length of one period to be the tenor of the risk-free rate targeted by the central bank, e.g. 1 day. There exists a stochastic discount factor (SDF, a.k.a. pricing kernel).
I am ...
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54 views
asset-pricing problem
Consider the utility function $ν(c_1, c_2) = u(c_1) + \beta u(c_2)$, $0 < \beta < 1$, defined for $c_1 ≥0$ and $c2 ≥0$. Assume $ν′(c)>0$ and $ν′′(c)<0$ for all $c>0$ ; if you like, you ...
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4answers
75 views
How should I evaluate my startup?(specific question)
If I have a startup that produces a product that I estimate to sell 100/per month, with 50%profit, and $200 is the customer price of each product, How can I evaluate this business to find investors?
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2answers
54 views
How much of an assets price change is due to speculators and functional buys/sellers
If (for example) a heavily traded asset like crude oil has a price move of x, how much of that is influenced by functional buyers/sellers and how much by speculators?
Let's say x is +100, there are 8 ...
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2answers
114 views
Historical sovereign bond yield and CDS rate data download
Does anyone know where I can download from:
1) historical data for sovereign bond yields (or prices) and
2) historical data for soveregin CDS (credit default swaps) rates?
preferebly free?
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0answers
21 views
Approximate factor model: Weakly correlated and eigenvalue
To my best knowledge, in Ross's APT, it is assumed that the pricing model is the exact factor model.
Chamberlain (1983 ECTA) expanded it into the approximate factor model.
In the exact factor ...
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1answer
932 views
Asset pricing vs Empirical asset pricing
I get confused on what is the difference between asset pricing vs empirical asset pricing? Could you clarify your answer? Also, is asset pricing just assessing the current value of an asset?
Thanks,
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2answers
85 views
Any major theory/model that considers return due to idiosyncratic risk?
Are there any classical, major theories/models that consider positive return due to idiosyncratic risk? For example, CAPM only considers return due to systemic risk but not idiosyncratic risk. If ...
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0answers
63 views
Monthly savings plans
Monthly savings plans in stocks or funds are typical investments for many people. On aggregate, these plans generate a large demand on the underlying assets, often around the end/beginning of a month.
...
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1answer
341 views
Proving that constant absolute risk aversion and relative risk aversion implies independence of initial wealth
I was able to prove that for a portfolio with one risk-free asset and one risky asset, if the Arrow-Pratt measure of absolute risk aversion is constant (i.e., constant absolute risk aversion, CARA), ...
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1answer
156 views
During an economic expansion, how do the ratios of Return on Equity and Return on Asset are affected?
From my perspective, during an economic expansion, industrial production, employment, personal incomes and sales are increased excluding the inflation rate. To be more specific, companies buy new ...
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3answers
50 views
Does an instant settlement system (such as blockchains) eliminate the possibility for short selling?
My understanding is that a short sell is possible because you can sell positions you don't have and then buy at a later point to cover your position (with the price hopefully being more favorable) to ...
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1answer
170 views
International Capital Asset Pricing Model (CAPM)
I wanted to value a High-tech start-up of which I have the cash flows of the coming 6 years. I decided to use the Discounted Cash Flow Method. To do so, I calculated the Discount rate.
For a High-...
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3answers
216 views
Introductory book for asset pricing and financial economics
I am going to complete a continuous time finance course in the upcoming semester. Although all my higher education is in economics I have not encountered a financial economics setting of contingent ...
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1answer
90 views
Forward Guidance - What happens when the FED unloads its balance sheet
Please Excuse my ignorance.
The US Federal Reserve has issued forward guidance telling the world that it is going to start to sell its (well a little less) 4.5 trillion dollars worth of securities ...
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2answers
65 views
Inflation , Housing Prices, Is there some form of the CPI that can include Home Prices?
I understand why we don't include real estate in the CPI. It makes sense, when it is explained to me. I also understand Rent is included in the CPI.
However? I live in Canada . Our Populations ...
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1answer
81 views
Econometrics for currency valuation?
Different assets have different motivations and components for price determination. For example, an equity stock price might be considered to be include the value of underlying company, its potential ...
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1answer
166 views
Optimal pricing for Crypto-Currency Exchanges
I have a general understanding of game theory, and want to try to apply it to crypto-currency exchanges, which are completely decentralised systems. I come from a finance background so I will define ...
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1answer
81 views
How does a liquidity guarantee for Asset-Backed Commercial Paper used to finance a Conduit work ?
A liquidity guarantee was what a lot of banks used to insure outside investors payments if an asset in a Conduit defaulted. The way they were doing it was not really dispersing the risk evenly ...
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1answer
128 views
Deriving and using the pricing equation
I'm a mathematician who's trying to learn some economics from Cochrane's Asset Pricing book.
I don't have any background in economics.
In chapter 1, he derives the basic pricing equation
$$ p_t = \...
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0answers
59 views
Dataset - Fama French Replication
I am trying to replicate the Fama-French three-factor model. I am having issues in the dataset.
1) Using the CRSP/COMPUSTAT merged dataset for firm fundamentals from WRDS, and then dropping data on ...
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68 views
Metric for evaluating sales with dynamic pricing
Suppose you have a sausage maker. He buys batches of ground meat, then makes and sells sausages. Suppose each batch of ground meat makes N sausages, and each batch has specific level of quality that ...
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1answer
84 views
Capital Asset Pricing Model Variation [closed]
Usually for CAPM we have:
$$E(R_i)-\gamma=\frac{cov(R_i,R_m)}{var(R_m)}\times E(R_m-\gamma)$$
We know that
$$\beta=\frac{cov(R_i,R_m)}{var(R_m)}$$
When can we replace $\beta$ with $\left(\frac{E(...
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30 views
How to dynamically update/calculate the price if we have the following values?
Need to update/calculate the price, the given values are:
Reserve (Stock) (higher the price can be lower)
Cost (the higher, the price can be higher)
Sales Speed (the higher, the price can be higher)
...
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0answers
52 views
Consumer based asset pricing model, differentiation problem
Just a small question about the differentiation technique used in the consumer based asset pricing model.
I need to maximize the following equation:
$U(c_t) + E_t[\beta \cdot u(c_{t+1})]$
$$\begin{...
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2answers
193 views
Asset pricing Coursera resources
I am trying to learn John Cochrane's Asset Pricing. I notice there are Coursera resources (link). However, it is not available now. Did anyone try that class before? Does anyone know what's the next ...
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2answers
437 views
Ito's Lemma derivation
I'm getting into asset pricing and was looking at Ito's Lemma, but cannot understand a few steps that are given.
Ito's Lemma states that given
$$dx_t = \mu dt + \sigma dz_t \\
y_t = f(t, x_t)$$
...
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1answer
82 views
Can anyone help me understand the budget constraint of an investor in complete market?
In the problem below, u is a utility function; $\beta$ is a discount factor; pc(s) is the price for a contingent claim for state s. c is initial consumption and and y is initial wealth. s represents a ...
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426 views
What is the intuition behind projecting stochastic discount factor into the vector space spanned by the payoff vectors?
It makes sense to stochastic discount factor as a function of impatience and marginal utility of consumption, but what is the rationale to project it into the vector space spanned by the payoff ...
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1answer
2k views
Under what condition would the law of one price hold?
Under the consumption-based model for asset pricing, different people will have different prices because of their different utility functions.
What is the force that make the law of one price hold?
...
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2answers
816 views
Financial Economics Textbooks
I have an interest in financial economics, and I plan to take the graduate sequence, however I did not take an undergraduate course in that field. I would really appreciate it if someone could ...
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34 views
Gaussian Affine Model and CAPM
When I assume an one-factor Gaussian term structure model such as the Vasicek model
$dr_t = \kappa(\mu - r_t)dt + \sigma dW_t$
and specify a constant market price of risk of $dW$ to be $\lambda_t = \...
2
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1answer
38 views
Estimating the cost of an assett that needs to be replenished [closed]
I am working with hard drives. For simplicity, let's say all drives have the same capacity, 1TB and all cost $100.
They typically last about 4 years, when they need to be replaced. They drop in ...
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0answers
130 views
Fundamental Theorem of Asset Pricing (Linear Algebra)
I saw this question in a textbook that I was recently reading and don't really know how to aprpoach this problem.
Let $H$ be a finite dimensional vector space with inner product ($\cdotp$, $\cdotp$)....
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Risk factors and diversification in asset pricing models
Consider a factor model like Fama and French (1993). Total risk has two components, systematic risk and idiosyncratic risk. Idiosyncratic risk can be diversified while systematic risk cannot. ...
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Why does housing and parking cost more in urban vs. rural areas, but the same is not true for access to the road?
In city centres, land is more expensive than in suburban rural areas, as land is scarce. Consequentially, housing and parking in cities cost more. However, the same is not true for using the road (...
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1answer
23 views
If petrol/gas prices were locked down, how would normal consumers and the producers be affected?
Hey economics stack exchange! Congrats on getting to beta! I wanted to ask a question that was running through my head on a road trip earlier today.
Let's say a magic fairy grants a person his wish, ...
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1answer
149 views
Pricing a European call option while absence of arbitrage is violated
Assume that we have a general one-period market model consisting of d+1 assets and N states.
Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
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1answer
988 views
Apply Ito's Lemma to exponential martingale
$\newcommand{\dd}{\, \mathrm{d}}$
Consider the exponential martingale,
$$
\xi_t^\lambda = \exp \left\{ - \int_0^t \lambda_s \dd z_s - \frac 12 \int_0^T \lambda_s^2 \dd s \right\},
$$
that is used in ...
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2answers
253 views
Difference between objective and subjective distributions in asset pricing models?
How does one differentiate between "objective" and "subjective" probability distributions in asset pricing models?
In asset pricing, economists often make a distinction between the "subjective" and ...
