Abstract
This paper reviews the literature on asset pricing in diffusion models. The first part is devoted to equilibrium models based on the representative agent paradigm. Explicit formulas for fundamental equilibrium quantities such as the state price density, the interest rate and the market price of risk are presented. Valuation formulas for stocks and contingent claims are also provided. Numerical implementation of the model is carried out in a setting with constant relative risk aversion. The second part of the paper focuses on multiagent models with complete financial markets. Characterizations of equilibrium are reviewed and numerical algorithms for computation are proposed.
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Detemple, J., Rindisbacher, M. (2012). Diffusion Models of Asset Prices. In: Duan, JC., Härdle, W., Gentle, J. (eds) Handbook of Computational Finance. Springer Handbooks of Computational Statistics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-17254-0_3
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