Ergodicity, State Prices, and Long Bond Returns | Zendy

Tessitore Anthony | Zendy; Usmen Nilufer | Zendy

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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.

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