Generalized Recovery

David Lando, Lasse Heje Pedersen, Christian Skov Jensen

Publikation: Working paperForskning


We characterize when physical probabilities, marginal utilities, and the discount rate can be recovered from observed state prices for several future time periods. We make no assumptions of the probability distribution, thus generalizing the time-homogeneous stationary model of Ross (2015). Recovery is feasible when the number of maturities with observable prices is higher than the number of states of the economy (or the number of parameters characterizing the pricing kernel). When recovery is feasible, our model is easy to implement, allowing a closed-form linearized solution. We implement our model empirically, testing the predictive power of the recovered expected return and other recovered statistics.
UdgiverCentre for Economic Policy Research
Antal sider66
StatusUdgivet - 2018
NavnCentre for Economic Policy Research. Discussion Papers


  • Asset pricing theory
  • Financial economics
  • Pricing kernel
  • Risk aversion