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The Analysis of Stochastic Discount Factor

Chongfeng Wu

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Abstract

This paper introduces the emergence and development of asset-pricing theory, and then focuses on the stochastic discount factor model (SDF) and the empirical study. Through the stochastic discount factor model, it is easy to understand some classical problems of modern finance, such as arbitrage pricing theory and risk neutral pricing, etc. Asset pricing models are unified under the stochastic discount factor frame.

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What this paper is about

This paper introduces the emergence and development of asset-pricing theory, and then focuses on the stochastic discount factor model (SDF) and the empirical study. Through the stochastic discount factor model, it is easy to understand some classical problems of modern finance, such as arbitrage pricing theory and risk neutral pricing, etc. Asset pricing models are unified under the stochastic discount factor frame.

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Available abstract

This paper introduces the emergence and development of asset-pricing theory, and then focuses on the stochastic discount factor model (SDF) and the empirical study. Through the stochastic discount factor model, it is easy to understand some classical problems of modern finance, such as arbitrage pricing theory and risk neutral pricing, etc. Asset pricing models are unified under the stochastic discount factor frame.

Key concepts: Stochastic discount factor, Capital asset pricing model, Arbitrage pricing theory, Economics, Discounting, Mathematical economics, Arbitrage, Econometrics

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