Abstract Engel and West (EW, 2005) argue that as the discount factor gets closer to one, presentvalue asset pricing models place greater weight on future fundamentals. Consequently, current fundamentals have very weak forecasting power and asset prices in these models appear to follow approximately a random walk. We connect the Engel-West explanation to the studies of long-horizon regressions. ...

Dantzig’s pivoting rule is one of the most studied pivoting rules for the simplex algorithm. Whilethe simplex algorithm with Dantzig’s rule may require an exponential number of pivoting stepson general linear programs, and even on min cost flow problems, Orlin showed that O(mn log n)Dantzig’s pivoting steps suffice to solve shortest paths problems (we denote the number of vertices<l...

Costs and benefits in the distant future—such as those associated with global warming, long-lived infrastructure, hazardous and radioactive waste, and biodiversity—often have little value today when measured with conventional discount rates. We demonstrate that when the future path of this conventional rate is uncertain and persistent (i.e., highly correlated over time), the distant future shou...

This paper characterizes the equilibrium demand and risk premiums in the presence of skewness risk. In a model with a single time period, we extend the classical mean-variance two-fund separation theorem to a three-fund separation theorem. The additional fund is the skewness portfolio, i.e. a portfolio that gives the optimal hedge of the squared market return; it contributes to the skewness ris...

Purpose – The purpose of this paper is to define an evaluation model for cloud services to deal with the fuzzy information and propose a novel fuzzy evaluation method based on consistency intensity to analyze the quantitative value from the fuzzy information. Design/methodology/approach – The cloud service evaluation framework is constructed, and different trusted indicators for the infrastruct...

Countable state space Markov cost/ reward chains, satisfying a Lyapunov-t ype stability condition, are considered in this work. For an infinite planning horizon, risk sensitive (exponential) discounted and average cost criteria are considered. The main contribution is the development of a vanishing discount approach to relate the discounted criterion problem with the average criterion one, as t...

In an earlier paper, we showed that, in a multi-period setting (but with no multi-period commitment) with two client types (adverse selection) and a competitive insurer environment, a comparasin between periodic repetitions of the classic Rothschild-Stiglitz separating equilibrium contract menu and a second contract based on Bayesian learning (which we identify as a bonus-malus contract) yields...

We consider the optimization of nite-state, nite-action Markov Decision processes, under constraints. Costs and constraints are of the discounted or average type, and possibly nite-horizon. We investigate the sensitivity of the optimal cost and optimal policy to changes in various parameters. We relate several optimization problems to a generic Linear Program, through which we investigate sensi...

We consider a collusive arrangement as an agreement by the players of a game to restrict their choices to certain subsets of their strategy sets. A (collusive) scheme is the Cartesian product of such strategy subsets. We require schemes to be closed under sequential rationality. Using this solution concept, we apply the global game approach (Carlsson and van Damme, 1993) to the infinitely repea...

This paper tests whether investors’ discount rates predict ex post investment returns, Jensen’s alpha, and equity market beta in the private commercial real estate market. Using a dataset of 33,338 properties that were worth about 950 billion dollars in the period from 1977 to 2014, I find that properties’ acquisition cap rates, which measure discount rates, have significant predicting power fo...