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No-arbitrage equilibria with differential information : an enlarged existence theorem

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  • Lionel de Boisdeffre

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    (CERMSEM)

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    Abstract

    On the example of a pure-exchange financial economy with two periods, incomplete nominal-asset markets and differential information of the adverse selection's type, Cornet-De Boisdeffre (2002) introduced refined concepts of no-arbitrage prices and equilibria, which extended to the asymmetric information setting the classical concepts of the symmetric information literature. We now extend to the asymmetric information setting a standard existence property of symmetric information models. Namely, we prove that no-arbitrage prices fully characterize equilibrium security prices, in the sense that each equilibrium security price is arbitrage-free and each no-arbitrage price can be embedded as a no-arbitrage equilibrium security price. This result holds under the same standard conditions whether agents have symmetric or asymmetric information.

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    File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2004/B04102.pdf
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    Bibliographic Info

    Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number b04102.

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    Length: 18 pages
    Date of creation: Oct 2004
    Date of revision:
    Handle: RePEc:mse:wpsorb:b04102

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    Related research

    Keywords: General equilibrium; asymmetric information; arbitrage; inference; existence of equilibrium.;

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    1. Gale, D. & Mas-Colell, A., 1975. "An equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(1), pages 9-15, March.
    2. repec:hal:cesptp:halshs-00250167 is not listed on IDEAS
    3. Gale, D. & Mas-Colell, A., 1979. "Corrections to an equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 6(3), pages 297-298, December.
    4. Monique Florenzano, 2008. "General equilibrium," Documents de travail du Centre d'Economie de la Sorbonne b08005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    5. Cornet, Bernard & De Boisdeffre, Lionel, 2002. "Arbitrage and price revelation with asymmetric information and incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 38(4), pages 393-410, December.
    6. Bergstrom, Theodore C., 1976. "How to discard `free disposability' - at no cost," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 131-134, July.
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