Showing papers on "Stochastic discount factor published in 1994"

Assessing Specification Errors in Stochastic Discount Factor Models

Abstract: In this paper we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on x2 statistics associated with null hypothesis that models are correct, our measures of model performance do not reward variability of discount factor proxies. One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims. We demonstrate empirically the usefulness of methods in assessing some alternative stochastic factor models that have been proposed in asset pricing literature.

Discounting decisions in a supplier-buyer relationship with a linear buyer's demand

Abstract: In this paper, we analyze discounting decisions for a supplier with a group of homogeneous customers. We focus on two aspects: the gaming nature of the discount problem and the demand consideration in the process. We use a general quantity discount schedule and start with the Stackelberg equilibrium of the problem. It is shown that, for the seller to gain from quantity discount, he has to set up his quantity discount schedule such that the buyer will order more than his EOQ. Both the seller and the buyer can gain significantly from quantity discount. The incentive for discount is twofold: reducing inventory related cost and attracting more demand from the customers. In addition, quantity discount schedule can be very efficient in obtaining the maximum gain the seller and the buyer can possibly obtain together.

Assessing Specification Errors in Stochastic Discount Factor Models

Abstract: In this paper we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on x2 statistics associated with null hypothesis that models are correct, our measures of model performance do not reward variability of discount factor proxies. One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims. We demonstrate empirically the usefulness of methods in assessing some alternative stochastic factor models that have been proposed in asset pricing literature.

Mathematical models in finance

Abstract: Influence of Mathematical Models in Finance on Practice: Past, Present and Future Applied Mathematics and Finance Stock Price Fluctuations as a Diffusion in Random Environment A Note on Super-Replicating Strategies Worldwide Security Market Anomalies Making Money from Mathematical Models Path-Dependent Options and Transaction Costs Stochastic Equality Volatility and the Capital Structure of the Firm The General Mean-Variance Portfolio Section Problem On a Free Boundary Problem That Arises in Portfolio Management Interest Rate Volatility and the Shape of the Term Structure Multi-Factor Term Structure Models Dynamic Asset Allocation: Insights from Theory Index

Agency costs and the discount rate for public sector enterprises

Abstract: In this paper, we examine the implications of agency costs on the discount rate for public sector enterprises (PSEs); we do this in the framework of the Capital Asset Pricing Model. With the addition of agency costs, the discount rate for Public Sector Enterprises (PSEs) under uncertainty becomes the risk-adjusted discount rate plus a premium for agency costs; under certainty, the discount rate for PSEs is shown to be the risk-free rate plus a premium for agency costs. Use of a discount rate by PSEs without adjusting for agency costs both under certainty and uncertainty, will lead to sub-optimal capital investment decisions by PSEs.