Chapter 23
Risk Pricing over Alternative Investment Horizons *
Abstract
I explore methods that characterize model-based valuation of stochastically growing cash flows. Following previous research, I use stochastic discount factors as a convenient device to depict asset values. I extend that literature by focusing on the impact of compounding these discount factors over alternative investment horizons. In modeling cash flows, I also incorporate stochastic growth factors. I explore dynamic value decomposition (DVD) methods that capture concurrent compounding of a stochastic growth and discount factors in determining risk-adjusted values. ...
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