f]) and risk premium for different values of the parameters describing discount factor
([beta]) and risk aversion ([alpha]).
In the benchmark scenario, we also assume that the utility function is logarithmic and additively separable, and the distribution of discount factors
For example, in the case where the discount factor
is set to 0.
We assume that, in the second period, individuals choose the lottery with the highest expected utility, from the point of view of their alcohol discount factor
The rationale for why the stochastic discount factor
is much larger in the peso state than in the non-peso states is as follows.
We follow their approach and introduce shocks to the preference discount factor
as follows: for 1993 to 1995, 2%, 1%, and 1%, respectively and for 1999, 2%.
We consider bidders to be "impatient" if the discount factor
falls below the critical discount factor
The coefficient is a discount factor
that brings back to t (present value) that $1 in t+1.
Finally, equilibrium prices, profits, innovation, and consumer surplus are all increasing in the consumer's discount factor
where [RHO] (s) denotes the current price of an asset in state s; x (s) denotes the payments delivered by the asset in state s; and m (s, s') denotes the stochastic discount factor
from state s today to state s' tomorrow, that is, the function that is, the function that determines the equivalence between current period dollars in state s and next period dollars in state s'.
Section V presents discount factor
tables and describes a supporting document for one of the standards.
A long list of empirical failures called puzzles come from applying the stochastic discount factor
implied by that Euler equation.