Valuing the Future and Discounting in Random Environments: A Review
We address the process of discounting in random environments, which allows valuation of the 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 al...
| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-04-01
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| Series: | Entropy |
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| Online Access: | https://www.mdpi.com/1099-4300/24/4/496 |
| _version_ | 1797434801996693504 |
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| author | Jaume Masoliver Miquel Montero Josep Perelló J. Doyne Farmer John Geanakoplos |
| author_facet | Jaume Masoliver Miquel Montero Josep Perelló J. Doyne Farmer John Geanakoplos |
| author_sort | Jaume Masoliver |
| collection | DOAJ |
| description | We address the process of discounting in random environments, which allows valuation of the 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 discounting and introduce both the market price of risk and the risk neutral measure 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 for several countries on the long-run discount problem. |
| first_indexed | 2024-03-09T10:38:04Z |
| format | Article |
| id | doaj.art-d075b9a256d84fb38e175d3d57222b25 |
| institution | Directory Open Access Journal |
| issn | 1099-4300 |
| language | English |
| last_indexed | 2024-03-09T10:38:04Z |
| publishDate | 2022-04-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Entropy |
| spelling | doaj.art-d075b9a256d84fb38e175d3d57222b252023-12-01T20:50:14ZengMDPI AGEntropy1099-43002022-04-0124449610.3390/e24040496Valuing the Future and Discounting in Random Environments: A ReviewJaume Masoliver0Miquel Montero1Josep Perelló2J. Doyne Farmer3John Geanakoplos4Departament de Física de la Matèria Condensada, Universitat de Barcelona, 08028 Barcelona, SpainDepartament de Física de la Matèria Condensada, Universitat de Barcelona, 08028 Barcelona, SpainDepartament de Física de la Matèria Condensada, Universitat de Barcelona, 08028 Barcelona, SpainInstitute for New Economic Thinking at the Oxford Martin School, Oxford OX1 3UQ, UKSanta Fe Institute, Santa Fe, NM 87501, USAWe address the process of discounting in random environments, which allows valuation of the 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 discounting and introduce both the market price of risk and the risk neutral measure 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 for several countries on the long-run discount problem.https://www.mdpi.com/1099-4300/24/4/496discountingbond pricingreal interest rateseconophysics |
| spellingShingle | Jaume Masoliver Miquel Montero Josep Perelló J. Doyne Farmer John Geanakoplos Valuing the Future and Discounting in Random Environments: A Review Entropy discounting bond pricing real interest rates econophysics |
| title | Valuing the Future and Discounting in Random Environments: A Review |
| title_full | Valuing the Future and Discounting in Random Environments: A Review |
| title_fullStr | Valuing the Future and Discounting in Random Environments: A Review |
| title_full_unstemmed | Valuing the Future and Discounting in Random Environments: A Review |
| title_short | Valuing the Future and Discounting in Random Environments: A Review |
| title_sort | valuing the future and discounting in random environments a review |
| topic | discounting bond pricing real interest rates econophysics |
| url | https://www.mdpi.com/1099-4300/24/4/496 |
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