Masoliver, J.; Montero, M.; Perelló, J.; Farmer, J.D.; Geanakoplos, J. Valuing the Future and Discounting in Random Environments: A Review. Entropy 2022, 24, 496. https://doi.org/10.3390/e24040496
Masoliver, J.; Montero, M.; Perelló, J.; Farmer, J.D.; Geanakoplos, J. Valuing the Future and Discounting in Random Environments: A Review. Entropy 2022, 24, 496. https://doi.org/10.3390/e24040496
Masoliver, J.; Montero, M.; Perelló, J.; Farmer, J.D.; Geanakoplos, J. Valuing the Future and Discounting in Random Environments: A Review. Entropy 2022, 24, 496. https://doi.org/10.3390/e24040496
Masoliver, J.; Montero, M.; Perelló, J.; Farmer, J.D.; Geanakoplos, J. Valuing the Future and Discounting in Random Environments: A Review. Entropy 2022, 24, 496. https://doi.org/10.3390/e24040496
Abstract
We address the process of discounting in random environments which allows to value the far future in economic terms. We review several approaches to the problem regarding different well-established stochastic market dynamics in the continuous-time context and include the Feynman-Kac approach. We also review the relation between bond pricing theory and discount and introduce the market price of risk and the risk neutral measures from an intuitive point of view devoid of excessive formalism. We provide the discount for each economic model and discuss their key results. We finally present a summary of our previous empirical studies on several countries of the long-run discount problem.
Keywords
stochastic processes; finance; interest rates
Subject
Computer Science and Mathematics, Probability and Statistics
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.