Modeling the long run: Valuation in dynamic stochastic economies

In this paper I propose to augment the toolkit for economic dynamics and asset val-uation with methods that will reveal economic import of long-run stochastic structure. These tools enable informative decompositions of a model’s dynamic implications for valuation. The methods I feature the long-term behavior of valuation operators that ex-plicitly incorporate stochastic growth. The valuation operators are indexed by the gap of time between when a payoff is realized and when it is priced. Appropriately adapted Perron-Frobenius theory gives a characterization of the valuation behavior when this gap becomes large. Using such methods I provide operational decompositions of value implications of economic models including measures of parameter sensitivity and char-acterizations of long-run risk prices.