Overlapping risk adjusted sets of priors and the existence of efficient allocations and equilibria with short-selling
AbstractThe 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 InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 145 (2010)
Issue (Month): 6 (November)
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Web page: http://www.elsevier.com/locate/inca/622869
Uncertainty Risk Common prior Equilibria with short-selling Variational preferences;
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