Econometrica Vol. 73 No. 3 2005
Solving Asset Pricing Models when the Price-Dividend Function Is Analytic
Abstract
We present a new method for solving asset pricing models, which yields an analytic price-dividend function of one state variable. To illustrate our method we give a detailed analysis of Abel's asset pricing model. A function is analytic in an open interval if it can be represented as a convergent power series near every point of that interval. In addition to allowing us to solve for the exact equilibrium price-dividend function, the analyticity property also lets us assess the accuracy of any numerical solution procedure used in the asset pricing literature. Copyright The Econometric Society 2005.
- DOI
- 10.1111/j.1468-0262.2005.00600.x
- Volume
- 73
- Issue
- 3
- Pages
- 961-982
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref