Long Term Risk: An Operator Approach

@article{Hansen2006LongTR,
  title={Long Term Risk: An Operator Approach},
  author={Lars Peter Hansen and Jos{\'e} A. Scheinkman},
  journal={ERN: Pricing (Topic)},
  year={2006}
}
We create an analytical structure that reveals the long-run risk-return relationship for nonlinear continuous-time Markov environments. We do so by studying an eigenvalue problem associated with a positive eigenfunction for a conveniently chosen family of valuation operators. The members of this family are indexed by the elapsed time between payoff and valuation dates, and they are necessarily related via a mathematical structure called a semigroup. We represent the semigroup using a positive… Expand
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