Asset Pricing: Modeling and Estimation by B.Philipp Kellerhals

By B.Philipp Kellerhals

The sleek box of asset pricing asks for sound pricing types grounded at the idea of economic economies a los angeles Ingersoll (1987) as weIl as for accu­ fee estimation ideas a l. a. Hamilton (1994b) in terms of empirical inferences of the desired version. the belief in the back of this publication to be had is to supply the reader with a canonical framework that exhibits tips on how to bridge the distance among the continuous-time pricing perform in monetary engineering and the capital marketplace info unavoidably in basic terms on hand at discrete time durations. 3 significant monetary markets are to be tested for which we decide upon the fairness marketplace, the bond marketplace, and the electrical energy industry. In every one mar­ ket we derive new valuation versions to cost chosen monetary tools in continuous-time. the choice criterium for selecting a continuous-time version­ ing framework is the richness of the stochastic idea on hand for non-stop­ time tactics with Merton's pioneering contributions to monetary economics, accrued in Merton (1992). The continuous-time framework, reviewed and as­ sessed via Sundaresan (2000), permits us to procure analytical pricing formulae that will be unavailable in a discrete time surroundings. even if, on the time of imposing the derived theoretical pricing versions on industry facts, that's inevitably sampled at discrete time periods, we paintings with so-called distinct discrete time equivalents a l. a. Bergstrom (1984). We express the right way to with ease paintings inside of astate area framework which we derive in a basic surroundings as weIl as explicitly for every of the 3 applications.

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Especially, the tax liability hypothesis of unrealized capital gains gives support to explain discount values of up to six percent. However, US domestic equity closed-end funds have traded at an average discount of around ten per cent over the last thirty years. 4 Broadly, the research put forward can be categorized into the standard economic theories and the behavioral explanations. The standard economic theories attempt to explain the observable premia within the efficient markets framework. At first, there are explanations that aim at the possibility that the closed-end funds' underlying portfolio values may be overestimated.

In thus, they exhibit features of both asset classes which are worthwhile examining: (i) Closed-end funds are companies whose operations resemble those of any business corporation. Their shares are regularly traded on organized exchanges as any other publicly traded corporation. Closed-end funds only differ because their corporate business largely consists of investing funds in the securities of other entities and managing these investment holdings for income and profit. The important characteristic which makes closed-end funds unique among other joint-stock companies is that they provide simultaneous price quotations for both their stocks and their underlying investment portfolio.

To be more precise we define the concept of identification following Rothenberg (1971). ,p the pammeter vector contained in the admissible pammeter space 1/1, we call the set {F(YT,YT-I, ... ,p)}"'ElP' a model and an element F(YT,YT-I, ... ,p) of this set a structure. ,po -:---4 5 6 * F (YT, YT-l> ... ,p) -I- F (YT,yT-I, ... ,pO) , See, for example, Jazwinski (1970, eh. 5). See, for example, Jazwinski (1970), Tanizaki (1996) and Gourieroux and Monfort (1997). 3. 24 Chapter 2. Estimation Principles i.

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