Dynamic Present Values and the Intertemporal CAPM

  • Bjørn Eraker Wenyu Wang
  • Published 2011


Merton’s (1973) intertemporal Capital Asset Pricing Model is difficult to reconcile with present value computation when investment opportunities are random and time-varying. Merton assumes a geometric price process, and his equilibrium is constructed by solving for the instantaneous expected rate of return. We argue that this method is generally… (More)

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