... densities for continuous-time systems are discussed by Kwakernaakand Sivan (1972). For an elementary discussion of discrete-time systems, see Sargent (1 987 a). Also see Sargent (1 987 a, chap. 11) for ... problems use the trade-off identi ed by (1.4 .8) to design intertem-poral consumption plans that optimally balance risk-sharing and intertemporalconsumption smoothing against the need to offer correct ... difficult to predict variable; and (b) nevertheless that θ(L) = φ(L)so that the stochastic discount factor has subtle predictable components. Fea-ture (a) is needed to match observed prices of...