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Radner equilibria under ambiguous volatility

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  • Patrick Beißner

    ()
    (Center for Mathematical Economics, Bielefeld University)

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    Abstract

    The present paper considers a class of general equilibrium economics when the primitive uncertainty model features uncertainty about continuous-time volatility. This requires a set of mutually singular priors, which do not share the same null sets. For this setting we introduce an appropriate commodity space and the dual of linear and continuous price systems. All agents in the economy are heterogeneous in their preference for uncertainty. Each utility functional is a variational type. The existence of equilibrium is approached by a generalized excess utility fixed point argument. Such Arrow-Debreu allocations can be implemented into a Radner economy with continuous-time trading. Effective completeness of the market spaces alters to an endogenous property. Only mean unambiguous claims equivalently satisfying the classical martingale representation property build the marketed space.

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    Bibliographic Info

    Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 493.

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    Length: 48 pages
    Date of creation: Dec 2013
    Date of revision:
    Handle: RePEc:bie:wpaper:493

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    Related research

    Keywords: Knightian uncertainty; variational preferences; general equilibrium; mutually singular priors; dynamic consistency; volatility uncertainty; excess utility map; gross substitutes; risk adjusted priors; sublinear expectation; Radner implementation; incomplete markets;

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    31. repec:hal:journl:halshs-00470670 is not listed on IDEAS
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