Our task How to estimate and test discount factor model Ep, =e(m data,, parameter)x, 1. Bring an asset pricing model to data to estimate free parameters. For example, parameter B, r in m=B(c /c Or the b inm=o'f 2. Evaluate the model, is it a good model or not? Is another model better?Our task How to estimate and test discount factor model. 1. Bring an asset pricing model to data to estimate free parameters. For example, parameter in • Or the b in 2. Evaluate the model, is it a good model or not? Is another model better? • β,γ γ β − = + ( / ) t 1 t m c c m = b' f ( ( , ) ) t = t+1 t+1 t+1 Ep E m data parameter x