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Stochastic Discount Factors

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Modeling with Stochastic Programming

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Abstract

In this chapter, we discuss ways to use information from financial markets to calibrate models for discounting future risks. This type of information is important for modeling the impact of future uncertainty on present decisions. In some areas of activity, there exist well developed financial markets with hordes of traders using the tools and information available to them to decide the present value of future events. This chapter describes a methodology to use market information.

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Authors and Affiliations

  1. T.J. Watson Research Center IBM Corporation, 1101 Kitchawan Road, Yorktown Heights, NY, 10598, USA

    Alan J. King

  2. Department of Management Science, Lancaster University Management School, Lancaster, UK

    Stein W. Wallace

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  1. Alan J. King
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  2. Stein W. Wallace
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King, A.J., Wallace, S.W. (2012). Stochastic Discount Factors. In: Modeling with Stochastic Programming. Springer Series in Operations Research and Financial Engineering. Springer, New York, NY. https://doi.org/10.1007/978-0-387-87817-1_7

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