The equity premium in Brock's asset pricing model

Date
2007
Authors
Akdeniz, L.
Dechert, W. D.
Advisor
Instructor
Source Title
Journal of Economic Dynamics and Control
Print ISSN
0165-1889
Electronic ISSN
Publisher
Elsevier
Volume
31
Issue
7
Pages
2263 - 2292
Language
English
Type
Article
Journal Title
Journal ISSN
Volume Title
Abstract

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.

Course
Other identifiers
Book Title
Keywords
Computational economics, Projection methods, Asset pricing models, Stochastic growth models
Citation
Published Version (Please cite this version)