Incomplete Financial Markets and Jumps in Asset Prices
AbstractA dynamic pure-exchange general equilibrium model with uncertainty is studied. Fundamentals are supposed to depend continuously on states of nature. It is shown that: 1. if financial markets are complete, then asset prices vary continuously with states of nature, and; 2. if financial markets are incomplete, jumps in asset prices may be unavoidable. Consequently incomplete financial markets may increase volatility in asset prices significantly.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 09-12.
Length: 15 pages
Date of creation: Jun 2009
Date of revision:
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general equilibrium; financial markets; jumps in asset prices;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-02 (All new papers)
- NEP-CBA-2009-08-02 (Central Banking)
- NEP-DGE-2009-08-02 (Dynamic General Equilibrium)
- NEP-MIC-2009-08-02 (Microeconomics)
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