Published Online: 15 MAY 2010
Copyright © 2010 John Wiley & Sons, Ltd. All rights reserved.
Encyclopedia of Quantitative Finance
How to Cite
Hansen, L. P. and Renault, E. 2010. Pricing Kernels. Encyclopedia of Quantitative Finance.
- Published Online: 15 MAY 2010
Pricing kernels or stochastic discount factors (SDFs) are used to represent arbitrage-free valuation operators in dynamic stochastic economies. After deriving convenient representations for prices, we provide several examples of SDFs and discuss econometric methods for estimation and testing of asset pricing models that restrict the SDFs.
- stochastic discount factors;
- risk-neutral probabilities;
- incomplete markets;
- solvency constraints;
- limited participation;
- generalized method of moments