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Existence of equilibrium and price adjustments in a finance economy with incomplete markets

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Author Info
Talman, A.J.J.
Thijssen, J.J.J. (Tilburg University, Center for Economic Research)

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Abstract

In this paper the standard two-period general equilibrium model with incomplete /nancial markets is considered. First, existence of equilibrium is proved using a stationary point argument on the set of no-arbitrage prices. Prices are normalized with respect to the market portfolio. The proof does not use the commonly applied normalization on the unit sphere or truncation of the set of prices. It is shown that there exists a connected set from an arbitrary price vector to an equilibrium. The path can be followed by a simplicial algorithm for stationary point problems on polytopes. It is argued that this algorithm can be interpreted as originating from a market-maker maximizing the value of excess demand.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 79.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:200379

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Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Herings,P. Jean-Jacques & Kubler,Felix, 2002. "Computing Equilibria in Finance Economies," Research Memoranda 010, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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  2. Hirsch, M. D. & Magill, M. & Mas-Colell, A., 1990. "A geometric approach to a class of equilibrium existence theorems," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 95-106. [Downloadable!] (restricted)
  3. Herings,O. Jean-Jacques & Kubler,Felix, 2000. "The Robustness of CAPM-A Computational Approach," Research Memoranda 035, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jacco Thijssen, 2008. "A computational study on general equilibrium pricing of derivative securities," Annals of Finance, Springer, vol. 4(4), pages 505-523, October. [Downloadable!] (restricted)
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