Risk Price Dynamics

53 Pages Posted: 26 Jan 2010 Last revised: 24 Apr 2019

See all articles by Lars Peter Hansen

Lars Peter Hansen

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Jaroslav Borovička

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Mark Hendricks

University of Chicago - Department of Economics

José A. Scheinkman

Columbia University; Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 11, 2009

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 macro-economy 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.

Keywords: growth-rate risk, pricing, dynamics, elasticities, Markov process

JEL Classification: C52, E44, G12

Suggested Citation

Hansen, Lars Peter and Borovička, Jaroslav and Hendricks, Mark and Scheinkman, José, Risk Price Dynamics (November 11, 2009). Becker Friedman Institute for Research in Economics Working Paper No. 2010-004, Economic Theory Center Working Paper No. 33-2012, Available at SSRN: https://ssrn.com/abstract=1542092 or http://dx.doi.org/10.2139/ssrn.1542092

Lars Peter Hansen (Contact Author)

University of Chicago - Department of Economics ( email )

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Jaroslav Borovička

New York University (NYU) - Department of Economics ( email )

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Mark Hendricks

University of Chicago - Department of Economics ( email )

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José Scheinkman

Columbia University ( email )

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Princeton University - Department of Economics ( email )

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