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Radner equilibrium and systems of quadratic BSDEs with discontinuous generators

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  • Luis Escauriaza
  • Daniel C. Schwarz
  • Hao Xing

Abstract

Motivated by an equilibrium problem, we establish the existence of a solution for a family of Markovian backward stochastic differential equations with quadratic nonlinearity and discontinuity in $Z$. Using unique continuation and backward uniqueness, we show that the set of discontinuity has measure zero. In a continuous-time stochastic model of an endowment economy, we prove the existence of an incomplete Radner equilibrium with nondegenerate endogenous volatility.

Suggested Citation

  • Luis Escauriaza & Daniel C. Schwarz & Hao Xing, 2020. "Radner equilibrium and systems of quadratic BSDEs with discontinuous generators," Papers 2008.03500, arXiv.org, revised May 2021.
    • Handle: RePEc:arx:papers:2008.03500
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    References listed on IDEAS

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