Stochastic discounting (Q1205678)

From the author's abstract and introduction: Some basic principles for a trend approach of stochastic discounting are given. This is done in Section 2 of the present paper. Section 3 addresses another problem: Most stochastic models describing future interest developments do not include the effect of uncertainty in the distributional parameters. They therefore fail in explaining that prices depend explicitly on the time epoch at which they are made. By introducing a very simple explicit model with parameter uncertainty this point is demonstrated through explicit calculation. Possible generalizations are indicated in Section 4.