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Overlapping risk adjusted sets of priors and the existence of efficient allocations and equilibria with short-selling

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  • Dana, R.A.
  • Le Van, C.

Abstract

The theory of existence of equilibrium with short-selling is reconsidered under risk and ambiguity modelled by risk averse variational preferences. No-arbitrage conditions are given in terms of risk adjusted priors. A sufficient condition for existence of efficient allocations is the overlapping of the interiors of the risk adjusted sets of priors or the inexistence of mutually compatible trades, with non-negative expectation with respect to any risk adjusted prior. These conditions are necessary when agents are not risk neutral at extreme levels of wealths. It is shown that the more uncertainty averse or risk averse the agents, the more likely are efficient allocations and equilibria to exist.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 145 (2010)
Issue (Month): 6 (November)
Pages: 2186-2202

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Handle: RePEc:eee:jetheo:v:145:y:2010:i:6:p:2186-2202

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Uncertainty Risk Common prior Equilibria with short-selling Variational preferences;

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References

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Cited by:
  1. Ha-Huy, Thai & Le Van, Cuong & Nguyen, Manh-Hung, 2011. "Arbitrage and asset market equilibrium in infinite dimensional economies with risk-averse expected utilities," LERNA Working Papers 11.12.346, LERNA, University of Toulouse.
  2. repec:ipg:wpaper:201420 is not listed on IDEAS

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