The Equity Premium in Brock's Asset Pricing Model
Dechert, W. D.
Please cite this item using this persistent URLhttp://hdl.handle.net/11693/11579
Journal of Economic Dynamics and Control
- Department of Management 
In this paper we combine dynamic programming methods with projection methods for solving stochastic growth models. As an application of these methods, we solve Brock’s asset pricing model with a variety of parameterizations. We focused on finding parameterizations that result in an equity premium that is high relative to the variation in consumption. We show (both analytically and numerically) that the equity premium can be higher in a production based asset pricing model than it is in the consumption based asset pricing model, even when the real output level is the same in both models. r 2006 Elsevier B.V. All rights reserved.
Akdeniz, L., & Dechert, W. D. (2007). The equity premium in Brock's asset pricing model. Journal of Economic Dynamics and Control, 31(7), 2263-2292.