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Existence of Financial Equilibria in Continuous Time with Potentially Complete Markets

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  • Frank Riedel

    ()
    (Institute of Mathematical Economics, Bielefeld University)

  • Frederik Herzberg

    ()
    (Institute of Mathematical Economics, Bielefeld University)

Abstract

We prove that in smooth Markovian continuous-time economies with potentially complete asset markets, Radner equilibria with endogenously complete markets exist.

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Bibliographic Info

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 443.

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Length: 18 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:bie:wpaper:443

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Related research

Keywords: Potentially complete market; Continuous-time financial market; Radner equilibrium; Itô diffusion; Analytic transition density;

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References

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  1. Hindy, Ayman & Huang, Chi-fu, 1992. "Intertemporal Preferences for Uncertain Consumption: A Continuous Time Approach," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 781-801, July.
  2. Martins-da-Rocha, V. Filipe & Riedel, Frank, 2010. "On equilibrium prices in continuous time," Journal of Economic Theory, Elsevier, Elsevier, vol. 145(3), pages 1086-1112, May.
  3. Robert M. Anderson & Roberto C. Raimondo, 2008. "Equilibrium in Continuous-Time Financial Markets: Endogenously Dynamically Complete Markets," Econometrica, Econometric Society, Econometric Society, vol. 76(4), pages 841-907, 07.
  4. Dana, Rose Anne, 1993. "Existence and Uniqueness of Equilibria When Preferences Are Additively Separable," Econometrica, Econometric Society, Econometric Society, vol. 61(4), pages 953-57, July.
  5. Frank Riedel & Peter Bank, 2001. "Existence and structure of stochastic equilibria with intertemporal substitution," Finance and Stochastics, Springer, Springer, vol. 5(4), pages 487-509.
  6. Darrell Duffie & Jun Pan & Kenneth Singleton, 2000. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," Econometrica, Econometric Society, Econometric Society, vol. 68(6), pages 1343-1376, November.
  7. Huang, Chi-fu, 1987. "An Intertemporal General Equilibrium Asset Pricing Model: The Case of Diffusion Information," Econometrica, Econometric Society, Econometric Society, vol. 55(1), pages 117-42, January.
  8. Duffie, J Darrell & Huang, Chi-fu, 1985. "Implementing Arrow-Debreu Equilibria by Continuous Trading of Few Long-lived Securities," Econometrica, Econometric Society, Econometric Society, vol. 53(6), pages 1337-56, November.
  9. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 12(04), pages 627-627, November.
  10. J. Hugonnier & S. Malamud & E. Trubowitz, 2012. "Endogenous Completeness of Diffusion Driven Equilibrium Markets," Econometrica, Econometric Society, Econometric Society, vol. 80(3), pages 1249-1270, 05.
  11. Dana, Rose-Anne, 2002. "On Equilibria when Agents Have Multiple Priors," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/5456, Paris Dauphine University.
  12. Ioannis Karatzas & (*), S. G. Kou, 1998. "Hedging American contingent claims with constrained portfolios," Finance and Stochastics, Springer, Springer, vol. 2(3), pages 215-258.
  13. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
  14. Jeanblanc, Monique & Dana, Rose-Anne, 2003. "Financial Markets in Continuous Time," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/13604, Paris Dauphine University.
  15. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(2), pages 177-188, November.
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Cited by:
  1. Patrick Beißner, 2013. "Radner equilibria under ambiguous volatility," Working Papers, Bielefeld University, Center for Mathematical Economics 493, Bielefeld University, Center for Mathematical Economics.
  2. Dmitry Kramkov, 2013. "Existence of an endogenously complete equilibrium driven by a diffusion," Papers 1304.3516, arXiv.org.
  3. Dmitry Kramkov & Silviu Predoiu, 2011. "Integral representation of martingales motivated by the problem of endogenous completeness in financial economics," Papers 1110.3248, arXiv.org, revised Oct 2012.

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