The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Bubbles as Payoffs at Infinity
Christian Gilles and Stephen F. LeRoy

Abstract: We define rational bubbles to be securities with payoffs occurring in the infinitely distant future and investigate the behavior of bubble values. We extend our analysis to a setting of uncertainty. In an infinite-horizon arbitrage-free model of asset prices, we interpret the money market account as the value of a particular bubble; a similar interpretation holds for other assets related to the state-price deflator and to payoffs on bonds maturing in the distant future. We present three applications of this characterization of bubbles.

Keywords: Asset prices, money-market account, state-price deflator

Full paper (303 KB PDF) | Full paper (259 KB Postscript)

Home | Economic research and data | FR working papers | FEDS | 1996 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: July 16, 1997