Assume that von Neumann?Morgenstern-utility is a time separable functional of the form Show that the price of

Question:

Assume that von Neumann?Morgenstern-utility is a time separable functional of the form

Show that the price of an arbitrary security can be written as expectation value

where the random variable M is called the stochastic discount factor (SDF), and is given by

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For answer-question

A First Course in Quantitative Finance

ISBN: 978-1108419574

1st edition

Authors: Thomas Mazzoni

See More Books

Question Posted: Feb 19, 2020 08:44 AM

See More Questions

Sidewalk Sams brother Morgan von Neumanstern is an expected utility maximizer. His von Neumann-Morgenstern utility function for wealth is u(c) = lnc. Sams brother also sells sunglasses on another...
Consider an economy at t = 0 and t = T. Show that under CARA-utility, the stochastic discount factor is if the usual time separable von Neumann-Morgenstern-utility functional is assumed....
Portia has been waiting a long time for her ship to come in and has concluded that there is a 25% chance that it will arrive today. If it does come in today, she will receive $1,600. If it does not...
DRAW A PLAN OF YOUR HOME THEN ESTIMATE QUANTITY OF * FOOTING *BLOCK WALL UNDER DPC * BLOCK WALL ABOVE DPC * CEMENT PLASTERING OUTSIDE *GYPSUM PLASTERING INSIDE
Electrophilic aromatic substitutions to benzene and electrophilic additions to alkenes both involve a slow first step and a fast second step. Using Figure 4.5 as a guide, draw a reaction energy...
In what ways can you, as a consumer, help to improve productivity for at least three service organizations that you patronize? Which distinctive characteristics of each service make some of these...
Mary Kay Morrow began working for Hallmark in 1982. At the beginning of 2002, Hallmark adopted the Hallmark Dispute Resolution Program, which required, among other things, that claims against the...
A mixture containing 65.0 mole% acetone (Ac) and the balance acetic acid (AA) is separated in a continuous distillation column at 1 atm. A flowchart for the operation is as follows: The overhead...
Consider the given vector field. F(x, y, z) = (x + yz)i + (y + xz)j + (z + xy)k (a) Find the curl of the vector field. curl F = (b) Find the divergence of the vector field. div F =
On December 31, Year 4, RAV Company purchased 60% of the outstanding common shares of ENS Company for $1,260,000. On that date, ENS had common shares of $500,000 and retained earnings of $130,000. In...
Assume the random variable W has expectation value E[W] = and variance Var[W] = 2 . Mean variance analysis postulates that expected utility increases with increasing , and decreases with increasing...
Show that the risk premium of a security with state contingent payoff |d n is given by Cov[M, d n ]. Use the relation in the process. Cov[X, Y]= E[XY] E[X\E[ Y]
Explain where you could obtain the information needed to determine the amount of the insurance adjustment in the work sheets Adjustments section.
Using the IS PC MR model to compare the decision-making process taken by the central bank ( and forex market in the open economy) in a closed and open economy after an inflation shock ?
Why did Amazon choose UK as its first foreign entry location and not other countries such as Canada or Australia?
to })(6) If r(x)=3x-1 and s(x) = 2x + 1, which expression is equivalent to
Based on the yield curve and spread charts above (as at 3/31/2020), can anyone explain overall market environment? Ex. performance for various bonds with respect to long term or short term,...
define some sources of data used for national income accounting. Once you have identified three or more, look them up and report what you have found.?
After the amount due on a sale of $16,000, terms 2/10, n/eom, is received from a customer within the discount period, the seller consents to the return of the entire shipment. The cost of the...
The percentage of completion and completed contract methods are described in the FASB ASC. Search the codification to find the paragraphs covering these topics, cite them, and copy the results.
Your manager advises you that clients Mike and Winona Marsh, residents of Bath, Maine, acquired beachfront property in Maine in 2002 and titled the property in their names as joint tenants with right...
Janet Mason timely filed a 2016 gift tax return to report the gift on June 3, 2016, of closely held stock in Mason Meat Co., Inc. The tax return, which your firm prepared, reflected a value of $1,500...
On August 3, 2015 Ginger Grayson, a widow, transferred $55,000 to each of two Sec. 529 plans (qualified tuition programs), one for grandson Greg Grayson and one for granddaughter Gayle Grayson. Her...
Selected T-accounts of Moore Company are given below for the just completed year: Raw Materials Debit Credit Debit Balance 1/1 Debits 21,000 Credits 132,000 ? Debits Manufacturing Overhead 210,800...
Describe the effects of this transaction on the accounting equation in terms of debits and credits. The new equipment was purchased for 6 4 2 3 6 on January 1 st . As of that date, the property,...
Credit Sales Cash Collections Jan. 7 Austin Co. $14,200 Jan. 17 Austin Co. $8,000 15 Diaz Co. 6,600 24 Diaz Co. 4,400 23 Noble Co. 11,100 29 Noble Co. 11,100 Identify the balances that appear in the...

Assume that von Neumann?Morgenstern-utility is a time separable functional of the form Show that the price of

Question:

U[C] =u(co) + e pT u(cw)Po Sn = E[Md,]-

Step by Step Answer:

The von NeumannMorgenstern utility function is a time separable functional of the form Uwt t1t1u...View the full answer

A First Course in Quantitative Finance

Students also viewed these Business questions