Premium
Ergodicity, State Prices, and Long Bond Returns
Author(s) -
Tessitore Anthony,
Usmen Nilufer
Publication year - 1998
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/1467-9965.00046
Subject(s) - bond , economics , bond valuation , dividend , financial economics , markov chain , reciprocal , econometrics , mathematical economics , finance , mathematics , linguistics , statistics , philosophy
We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long‐horizon discount bond.