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Arbitrage and Equilibrium with Portfolio Constraints

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  • Bernard Cornet

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, University of Kansas - University of Kansas)

  • Ramu Gopalan

    ()
    (Washington and Jefferson College - Department)

Abstract

We consider a multiperiod financial exchange economy with nominal assets and restricted participation, where each agent's portfolio choice is restricted to a closed, convex set containing zero, as in Siconolfi (1989). Using an approach that dates back to Cass (1984, 2006) in the unconstrained case, we seek to isolate arbitrage-free asset prices that are aloso quasi-equilibrium or equilibrium asset prices. In the presence of such portfolio restrictions, we need to confine our attention to aggregate arbitrage-free asset prices, i.e., for which there is no arbitrage in the space of marketed portfolios. Our main result states that such asset prices are quasi-equilibrium prices under standard assumptions and then deduce that they are equilibrium prices under a suitable condition on the accessibility of payoffs by agents, i.e., every payoff that is attainable in the aggregate can be marketed through some agent's portfolio set. This latter result extends previous work by Martins-da-Rocha and Triki (2005).

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00441873.

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Date of creation: Oct 2009
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Handle: RePEc:hal:cesptp:halshs-00441873

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Related research

Keywords: Stochastic financial exchange economies; incomplete markets; financial equilibrium; constrained portfolios; multiperiod models; arbitage-free asset prices.;

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Citations

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Cited by:
  1. 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.
  2. Jean-Marc Bonnisseau & Achis Chery, 2011. "On the rank of payoff matrices with long-term assets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00659183, HAL.
  3. Zaier Aouani & Bernard Cornet, 2009. "Existence of financial equilibria with restricted participation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00426441, HAL.
  4. Jean-Marc Bonnisseau & Achis Chery, 2013. "Stability of marketable payoffs with long-term assets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00917638, HAL.
  5. Abdelkrim Seghir & Juan Pablo Torres-Martínez, 2010. "On equilibrium existence with endogenous restricted financial participation," Working Papers wp316, University of Chile, Department of Economics.
  6. Iraola, Miguel & Torres-Martínez, Juan Pablo, 2013. "Liquidity Contractions, Incomplete Financial Participation and the Prevalence of Negative Equity Non-recourse Loans," MPRA Paper 46838, University Library of Munich, Germany.
  7. Jean-Marc Bonnisseau & Achis Chery, 2013. "Tackling the instability of growth: A Kaleckian model with autonomous demand expenditures," Documents de travail du Centre d'Economie de la Sorbonne 13029, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  8. Jean-Marc Bonnisseau & Achis Chery, 2013. "Sensitivity of marketable payoffs with long-term assets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00821094, HAL.
  9. Sebastián Cea-Echenique & Carlos Hervés-Beloso & Juan Pablo Torres-Martínez, 2012. "Endogenous Information: The Role of Sequential Trade and Financial Participation," Working Papers wp361, University of Chile, Department of Economics.
  10. Aouani, Zaier & Cornet, Bernard, 2011. "Reduced equivalent form of a financial structure," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 318-327.
  11. Jean-Marc Bonnisseau & Achis Chery, 2011. "On the rank of payoff matrices with long-term assets," Post-Print halshs-00659183, HAL.

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