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Equilibrium Models With Singular Asset Prices

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  • Ioannis Karatzas
  • John P. Lehoczky
  • Steven E. Shreve

Abstract

General equilibrium models in which economic agents have finite marginal utility from consumption at the origin lead to financial assets having continuous prices with singular components. In particular, there is no bona fide “interest rate” in such models, although asset prices can be determined by equilibrium considerations (and uniquely, up to the formation of mutual funds). the singularly continuous processes in question charge precisely the set of time points at which some agent “drops out” of the economy, or “comes back” into it, between intervals of zero consumption. Not surprisingly, these processes are governed by local time.

Suggested Citation

  • Ioannis Karatzas & John P. Lehoczky & Steven E. Shreve, 1991. "Equilibrium Models With Singular Asset Prices," Mathematical Finance, Wiley Blackwell, vol. 1(3), pages 11-29, July.
    • Handle: RePEc:bla:mathfi:v:1:y:1991:i:3:p:11-29
    DOI: 10.1111/j.1467-9965.1991.tb00013.x
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    References listed on IDEAS

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    1. Paulo Monteiro, 2005. "General equilibrium in Rio," Economics Bulletin, AccessEcon, vol. 28(35), pages 1.
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    Cited by:

    1. Jérôme Detemple & Angel Serrat, 2003. "Dynamic Equilibrium with Liquidity Constraints," The Review of Financial Studies, Society for Financial Studies, vol. 16(2), pages 597-629.
    2. Gordan Žitković, 2012. "An example of a stochastic equilibrium with incomplete markets," Finance and Stochastics, Springer, vol. 16(2), pages 177-206, April.
    3. Gordan Zitkovic, 2007. "Financial equilibria in the semimartingale setting: complete markets and markets with withdrawal constraints," Papers 0706.0462, arXiv.org.
    4. Ioannis Karatzas & Constantinos Kardaras, 2007. "The numéraire portfolio in semimartingale financial models," Finance and Stochastics, Springer, vol. 11(4), pages 447-493, October.
    5. Martin Herdegen & Johannes Muhle-Karbe, 2018. "Stability of Radner equilibria with respect to small frictions," Finance and Stochastics, Springer, vol. 22(2), pages 443-502, April.
    6. Ioannis Karatzas & Constantinos Kardaras, 2008. "The numeraire portfolio in semimartingale financial models," Papers 0803.1877, arXiv.org.
    7. Kogan, Leonid, 2001. "An equilibrium model of irreversible investment," Journal of Financial Economics, Elsevier, vol. 62(2), pages 201-245, November.
    8. Gordan Zitkovic, 2009. "An example of a stochastic equilibrium with incomplete markets," Papers 0906.0208, arXiv.org, revised Jun 2010.
    9. Likuan Qin & Vadim Linetsky, 2016. "Positive Eigenfunctions of Markovian Pricing Operators: Hansen-Scheinkman Factorization, Ross Recovery, and Long-Term Pricing," Operations Research, INFORMS, vol. 64(1), pages 99-117, February.

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