Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 0448: An Extension of Good-Deal Asset Price Bounds

Iñaki R. Longarela ()
Additional contact information
Iñaki R. Longarela: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: In a two-period setup we develop a generalization of good-deal bounds that allows to include in the problem the implications of asset pricing models. Our basis is the distance behind Hansen and Jagannathan's measure of model misspecification since a volatility constraint on the stochastic discount factor is a particular case of a restriction on this distance. We also present an alternative approach which mostly retains the economic interpretation underlying the above extension and it has a very useful property since the resulting bounds can be computed by simply solving a linear program.

Keywords: generalized good-deal bounds; L1-norm methods

JEL-codes: C63; G12

20 pages, First version: May 21, 2001. Revised: October 19, 2001. Earlier revisions: October 19, 2001.

Note: The previous version of this working paper had the title "A New Approach to the Derivation of Asset Price Bounds".

Full text files

hastef0448.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2020-02-16 18:55:45.