2016/10/03 by Likuan Qin, Vadim Linetsky, Qin, Likuan +1 · 1 citation
Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Financial Risk and Volatility Modeling #Mathematical Finance (q-fin.MF) #Stochastic processes and financial applications #q-fin.MF
paper · pdf · doi:10.48550/arxiv.1610.00778
openalex publication_date 2016/10/03 · arxiv created 2017/07/27 · arxiv updated 2017/07/28 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper constructs and studies the long-term factorization of affine pricing kernels into discounting at the rate of return on the long bond and the martingale component that accomplishes the change of probability measure to the long forward measure. The principal eigenfunction of the affine pricing kernel germane to the long-term factorization is an exponential-affine function of the state vector with the coefficient vector identified with the fixed point of the Riccati ODE. The long bond volatility and the volatility of the martingale component are explicitly identified in terms of this fixed point. A range of examples from the asset pricing literature is provided to illustrate the theory.