Learning, Structural Instability, and Present Value Calculations
By Hashem Pesaran, Davide Pettenuzzo, Allan G. Timmermann. Social Science Research Network, 2007
116 citations recorded by the source corpus.
Present value calculations require predictions of cash flows both at near and distant future points in time. Such predictions are generally surrounded by considerable uncertainty and may critically depend on assumptions about parameter values as well as the form and stability of the data generating process underlying the cash flows. This paper presents new theoretical results for the existence of the infinite sum of discounted expected future values under uncertainty about the parameters characterizing the growth rate of the cash flow process. Furthermore, we explore the consequences for present values of relaxing the stability assumption in a way that allows for past and future breaks to the underlying cash flow process. We find that such breaks can lead to considerable changes in present values.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/f1f7da80ccd9f044b27b50c8d1857e3ba95d4aea
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
In Finance
Citations in the corpus
- Macroeconometric Modelling with a Global Perspective (2006, unknown): “2The problem of forecasting time series subject to multiple structural breaks over long horizons and its implication for present value calculations are discussed in Pesaran, Pettenuzzo and Timmerman (2005,2006) .”
- Discounting climate change (2008, background): “Pesaran et al. (2007) and Weitzman (2007a,b) have shown that the probability distributions over the uncertain and σ can plausibly have a thick lower tail, implying that a long, long run of low realizations of would not be improbable.”