Asymptotic Methods for Asset Market Equilibrium Analysis
AbstractGeneral equilibrium analysis is difficult when asset markets are incomplete. We make the simplifying assumption that uncertainty is small and use bifurcation methods to compute Taylor series approximations for asset demand and asset market equilibrium. A computer must be used to derive these approximations since they involve large amounts of algebraic manipulation. To illustrate this method, we apply it to analyzing the allocative, price, and welfare effects of introducing a new derivative security. We find that the introduction of any derivative will raise the value of the risky asset relative to bonds.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8135.
Date of creation: Feb 2001
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Other versions of this item:
- Sy-Ming Guu & Kenneth L. Judd, 2001. "Asymptotic methods for asset market equilibrium analysis," Economic Theory, Springer, vol. 18(1), pages 127-157.
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-02-27 (All new papers)
- NEP-DGE-2001-02-27 (Dynamic General Equilibrium)
- NEP-FIN-2001-02-27 (Finance)
- NEP-FMK-2001-02-27 (Financial Markets)
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