IDEAS home Printed from https://ideas.repec.org/a/bla/mathfi/v8y1998i3p249-275.html
   My bibliography  Save this article

A Discrete‐Time Intertemporal Asset Pricing Model: GE Approach with Recursive Utility

Author

Listed:
  • Chenghu Ma

Abstract

This paper studies the equilibrium characterization of asset pricing in a discrete‐time Lucas exchange economy (Lucas 1978) with the intertemporal recursive utility function of Epstein and Zin (1989). A general formulation of equilibrium asset pricing is presented. It is shown that risk aversion of a certainty equivalent corresponds to risk aversion in the intertemporal asset pricing model. The discrete‐time analogue of Ma's (1993) option pricing formula is derived in an i.i.d. environment, with which we prove an observational nonequivalence theorem in distinguishing the differences of the betweenness recursive utility functions and the expected utility functions. Additionally, when the consumption growth rate follows a first‐order Markov process, it is shown that the observational nonequivalence result holds for Kreps–Porteus expected utility. Finally, as by‐products, this paper also contains derivations of closed‐form formulas for the aggregate equity (with endogenously determined yields), the term structure of interest rates, and European call options on the aggregate equity in a Markov setting.

Suggested Citation

  • Chenghu Ma, 1998. "A Discrete‐Time Intertemporal Asset Pricing Model: GE Approach with Recursive Utility," Mathematical Finance, Wiley Blackwell, vol. 8(3), pages 249-275, July.
    • Handle: RePEc:bla:mathfi:v:8:y:1998:i:3:p:249-275
    DOI: 10.1111/1467-9965.00055
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1467-9965.00055
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1467-9965.00055?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chenghu Ma, 2003. "Term Structure of Interest Rates in the Presence of Levy Jumps: The HJM Approach," Annals of Economics and Finance, Society for AEF, vol. 4(2), pages 401-426, November.
    2. Wing-Keung Wong & Chenghu Ma, 2008. "Preferences over location-scale family," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(1), pages 119-146, October.
    3. Ma, Chenghu, 2006. "Intertemporal recursive utility and an equilibrium asset pricing model in the presence of Levy jumps," Journal of Mathematical Economics, Elsevier, vol. 42(2), pages 131-160, April.
    4. repec:wyi:journl:002088 is not listed on IDEAS
    5. Chenghu Ma, 2013. "Preferences, Levy Jumps and Option Pricing," Working Papers 2013-10-14, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:mathfi:v:8:y:1998:i:3:p:249-275. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.