Stability of equilibrium asset pricing models: A necessary and sufficient condition

Jaroslav Borovička, John Stachurski

    Research output: Contribution to journalArticlepeer-review

    Abstract

    We obtain an exact necessary and sufficient condition for the existence and uniqueness of equilibrium asset prices in infinite horizon, discrete-time, arbitrage free environments. Using local spectral radius methods, we connect the condition, and hence the problem of existence and uniqueness of asset prices, with the recent literature on stochastic discount factor decompositions. Our results include a globally convergent method for computing prices whenever they exist. Convergence of this iterative method itself implies both existence and uniqueness of equilibrium asset prices.

    Original languageEnglish (US)
    Article number105227
    JournalJournal of Economic Theory
    Volume193
    DOIs
    StatePublished - Apr 2021

    Keywords

    • Asset pricing
    • Equilibrium prices
    • Spectral methods

    ASJC Scopus subject areas

    • Economics and Econometrics

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