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Title:A new approach to the derivation of asset price bounds PDF Logo
Authors:Longarela, Iñaki R.
Issue Date:2001
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 448
Abstract:In a two-period setup we develop a generalization of good-deal bounds that allows to include in the problem the implications of asset pricing models. Our basis is the distance behind Hansen and Jagannathan's measure of model misspecification since a volatility constraint on the stochastic discount factor is a particular case of a restriction on this distance. We also present an alternative approach which mostly retains the economic interpretation underlying the above extension and it has a very useful property since the resulting bounds can be computed by simply solving a linear program.
Subjects:generalized good-deal bounds
L1-norm methods
JEL:C63
G12
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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