Mathematics and Financial Economics

, Volume 8, Issue 4, pp 333–354 | Cite as

Shock elasticities and impulse responses

  • Jaroslav BorovičkaEmail author
  • Lars Peter Hansen
  • José A. Scheinkman


We construct shock elasticities that are pricing counterparts to impulse response functions. Recall that impulse response functions measure the importance of next-period shocks for future values of a time series. Shock elasticities measure the contributions to the price and to the expected future cash flow from changes in the exposure to a shock in the next period. They are elasticities because their measurements compute proportionate changes. We show a particularly close link between these objects in environments with Brownian information structures.


Shock elasticities Nonlinear impulse response functions Risk pricing Markov dynamics Malliavin derivative 



We would like to thank the referee for useful comments.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  • Jaroslav Borovička
    • 1
    Email author
  • Lars Peter Hansen
    • 2
    • 3
  • José A. Scheinkman
    • 3
    • 4
    • 5
  1. 1.New York UniversityNew YorkUSA
  2. 2.University of ChicagoChicagoUSA
  3. 3.NBERCambridgeUSA
  4. 4.Columbia UniversityNew YorkUSA
  5. 5.Princeton UniversityPrincetonUSA

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