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Asset pricing with dynamic programming

Titelangaben

Grüne, Lars ; Semmler, Willi:
Asset pricing with dynamic programming.
In: Computational Economics. Bd. 29 (2007) . - S. 233-265.
ISSN 1572-9974
DOI: https://doi.org/10.1007/s10614-006-9063-1

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Abstract

The study of asset price characteristics of stochastic growth models such as the risk-free interest rate, equity premium and the Sharpe-ratio has been limited by the lack of global and accurate methods to solve dynamic optimization models. In this paper a stochastic version of a dynamic programming method with adaptive grid scheme is applied to compute the asset price characteristics of a stochastic growth model. The stochastic growth model is of the type as developed by Brock and Mirman (1972) and Brock (1979, 1982). It has become the baseline model in the stochastic dynamic general equilibrium literature. In a first step, in order to test our procedure, it is applied to this basic stochastic growth model for which the optimal consumption and asset prices can analytically be computed. Since, as shown, our method produces only negligible errors, as compared to the analytical solution, in a second step, we apply it to more elaborate stochastic growth models with adjustment costs and habit formation. In the latter model preferences are not time separable and past consumption acts as a constraint on current consumption. This model gives rise to an additional state variable. We here too apply our stochastic version of a dynamic programming method with adaptive grid scheme to compute the above mentioned asset price characteristics. We show that our method is very suitable to be used as solution technique for such models with more complicated decision structure.

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Publikationsform: Artikel in einer Zeitschrift
Begutachteter Beitrag: Ja
Keywords: Stochastic growth models; Asset pricing; Stochastic dynamic programming; Adaptive grid
Institutionen der Universität: Fakultäten
Fakultäten > Fakultät für Mathematik, Physik und Informatik
Fakultäten > Fakultät für Mathematik, Physik und Informatik > Mathematisches Institut
Fakultäten > Fakultät für Mathematik, Physik und Informatik > Mathematisches Institut > Lehrstuhl Mathematik V (Angewandte Mathematik)
Fakultäten > Fakultät für Mathematik, Physik und Informatik > Mathematisches Institut > Lehrstuhl Mathematik V (Angewandte Mathematik) > Lehrstuhl Mathematik V (Angewandte Mathematik) - Univ.-Prof. Dr. Lars Grüne
Titel an der UBT entstanden: Ja
Themengebiete aus DDC: 500 Naturwissenschaften und Mathematik
500 Naturwissenschaften und Mathematik > 510 Mathematik
Eingestellt am: 04 Mär 2021 07:11
Letzte Änderung: 26 Sep 2023 11:44
URI: https://eref.uni-bayreuth.de/id/eprint/63641