Model‐Free International Stochastic Discount Factors

2020 ◽  
Author(s):  
MIRELA SANDULESCU ◽  
FABIO TROJANI ◽  
ANDREA VEDOLIN
Keyword(s):  
Discount Factors ◽  
Model Free ◽  
Stochastic Discount Factors

The Term Structures of Coentropy in International Financial Markets

2019 ◽  
Vol 65 (8) ◽  
pp. 3541-3558 ◽  
Author(s):  
Fousseni Chabi-Yo ◽  
Riccardo Colacito
Keyword(s):  
Financial Markets ◽  
Risk Model ◽  
Discount Factors ◽  
Model Free ◽  
Term Structures ◽  
Asset Pricing Models ◽  
Long Run ◽  
Stochastic Discount Factors ◽  
Permanent And Transitory Components ◽  
Long Run Risk

We propose a new entropy-based correlation measure (coentropy) to evaluate the performance of international asset pricing models. Coentropy captures the codependence of two random variables beyond normality. We document that the coentropy of international stochastic discount factors (SDFs) can be decomposed into a series of entropy-based correlations of permanent and transitory components of the SDFs. We employ the cross section of G-10 countries to obtain model-free estimates of all the components of coentropy at various horizons and we show that the generalization of the long-run risk model featuring two predictable components of consumption growth rates, global disasters, and recursive preferences can account for the composition of codependence at all horizons. This paper was accepted by Tomasz Piskorski, finance.

A Theory of Dissimilarity Between Stochastic Discount Factors

2020 ◽  
Author(s):  
Gurdip Bakshi ◽  
Xiaohui Gao ◽  
George Panayotov
Keyword(s):  
Time Series ◽  
International Finance ◽  
Cross Section ◽  
Structural Models ◽  
Option Prices ◽  
Bond Prices ◽  
Currency Option ◽  
Discount Factors ◽  
Model Free ◽  
Stochastic Discount Factors

This paper proposes a measure of dissimilarity between stochastic discount factors (SDFs) in different economies. The SDFs are made comparable using the respective bond prices as the numeraire. The measure is dimensionless, synthesizes features of the risk-neutral moments of excess currency returns, and can be extracted from currency option prices. Linking theory to data, we provide evidence gathered from (i) the cross section of 45 currency option prices, (ii) the time series of currency returns, (iii) estimated SDFs using model-free restrictions, and (iv) structural models in international finance. This paper was accepted by David Simchi-Levi, finance.

Model-Free International Stochastic Discount Factors

2017 ◽  
Author(s):  
Mirela Sandulescu ◽  
Fabio Trojani ◽  
Andrea Vedolin
Keyword(s):  
Discount Factors ◽  
Model Free ◽  
Stochastic Discount Factors

Empirical Likelihood Estimators for Stochastic Discount Factors

2008 ◽  
Author(s):  
Caio Almeida ◽  
René Garcia
Keyword(s):  
Empirical Likelihood ◽  
Discount Factors ◽  
Stochastic Discount Factors

International stochastic discount factors and covariance risk

2021 ◽  
Vol 123 ◽  
pp. 106018
Author(s):  
Nicole Branger ◽  
Michael Herold ◽  
Matthias Muck
Keyword(s):  
Discount Factors ◽  
Stochastic Discount Factors
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