The problem of investing y(0) dollars at time 0 to duplicate a contigent claim is formulated as a dynamic optimization problem and solved by the Langrange method. If the function defining dy(t) is concave in y(t), owing to costs of trading in incomplete markets, there is an economy of scale in...

Derived from the present-value model of stock prices, our model implies that the log stock price is a linear function of expected log dividends and the expected rate of growth of dividends where expectations are formed adaptively. The model explains very well the prices of 47 stocks traded on...