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Asset Pricing in Discrete TimeA Complete Markets Approach$
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Ser-Huang Poon and Richard Stapleton

Print publication date: 2005

Print ISBN-13: 9780199271443

Published to Oxford Scholarship Online: July 2005

DOI: 10.1093/0199271445.001.0001

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Asset Pricing in Discrete Time

Ser-Huang Poon (Contributor Webpage)

Richard Stapleton (Contributor Webpage)

Oxford University Press

‘Multi-period Asset Pricing’ expands the analysis of asset prices to a multi-period economy, where an investor has to make consumption decisions in each period which may lead to consumption and wealth being different in the interim periods. The authors consider two distinct approaches to multi-period valuation; the time-state preference approach, where consumptions at different times and in different states were treated as separate assets, and the rational expectations approach that derives a period-by-period equilibrium in which investors form expectations of the price of securities. Here, they value assets relative to the value of bonds. While risk-free interest rate is given exogenously, the prices of these bonds at future points in time can be stochastic.

Keywords:   consumption decisions, exogenous interest rate, multi-period economy, period-by-period equilibrium, rational expectations approach, stochastic bond price, time-state preference approach

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