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Reduced equivalent form of a financial structure

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  • Aouani, Zaier
  • Cornet, Bernard

Abstract

We consider the two-date model of a financial exchange economy (E,F), with agents’ portfolio restrictions either represented by finitely many linear inequality constraints or satisfying Hart’s (1974) Weak No Market Arbitrage condition. The economy (E,F) is shown to have the same consumption equilibria as a reduced economy (E,F′), for which the set of admissible portfolio allocations is bounded. Building upon the equilibrium existence result for reduced financial economies (E,F′) (Aouani and Cornet, 2009), we then deduce the existence of equilibra of (E,F), under standard assumptions on the consumption side and under the aforementioned assumption on the financial side.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 47 (2011)
Issue (Month): 3 ()
Pages: 318-327

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Handle: RePEc:eee:mateco:v:47:y:2011:i:3:p:318-327

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Web page: http://www.elsevier.com/locate/jmateco

Related research

Keywords: Restricted participation; Portfolio constraints; Financial exchange economy; Reduced financial structure; Equivalent financial structure; Arbitrage-free prices; Consumption equilibrium;

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References

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  1. Bernard Cornet & Ramu Gopalan, 2009. "Arbitrage and equilibrium with portofolio constraints," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 09077, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Aouani, Zaier & Cornet, Bernard, 2009. "Existence of financial equilibria with restricted participation," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 45(12), pages 772-786, December.
  3. Duffie, Darrell & Shafer, Wayne, 1986. "Equilibrium in incomplete markets: II : Generic existence in stochastic economies," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 15(3), pages 199-216, June.
  4. Abdelkrim Seghir & Juan Pablo Torres-Martínez, 2010. "On equilibrium existence with endogenous restricted financial participation," Working Papers, University of Chile, Department of Economics wp316, University of Chile, Department of Economics.
  5. Philippe Bich & Bernard Cornet, 2004. "Fixed-point-like theorems on subspaces," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) b04064, Université Panthéon-Sorbonne (Paris 1).
  6. Philippe Bich & Bernard Cornet, 2009. "Existence of pseudo-equilibria in a financial economy," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 09060, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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  15. Duffie, Darrell & Shafer, Wayne, 1985. "Equilibrium in incomplete markets: I : A basic model of generic existence," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 14(3), pages 285-300, June.
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Citations

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Cited by:
  1. Zaier Aouani & Bernard Cornet, 2009. "Existence of financial equilibria with restricted participation," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 09063, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Cea-Echenique, Sebastián & Torres-Martínez, Juan Pablo, 2014. "General Equilibrium with Endogenous Trading Constraints," MPRA Paper 55359, University Library of Munich, Germany.
  3. Miguel A. Iraola & Juan Pablo Torres-Martinez, 2013. "Liquidity Contractions, Incomplete Financial Participation and the Prevalence of Negative Equity Non-Recourse Loans," Working Papers, University of Miami, Department of Economics 2013-08, University of Miami, Department of Economics.
  4. Sebastián Cea-Echenique & Carlos Hervés-Beloso & Juan Pablo Torres-Martínez, 2012. "Endogenous Information: The Role of Sequential Trade and Financial Participation," Working Papers, University of Chile, Department of Economics wp361, University of Chile, Department of Economics.
  5. Pérez Fernández, Víctor & Torres-Martínez, Juan Pablo, 2012. "Incomplete financial participation: exclusive markets, investment clubs and credit risk," MPRA Paper 36624, University Library of Munich, Germany.

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