A Shadow Asset Pricing Approach to the Analysis of Financial Markets' Equilibria in an Open Economy
The paper studies dynamic equilibria in international financial markets with consumption and portfolio optimizing agents. The arising stochastic dymanic optimization problems with state variable (in particular: liquidity) constraints are analyzed by means of the adjoint/Euler equation for the co-state process, as a part of the Stochastic Maximum Principle. In the problems under consideration, not so much the equilibrium asset holdings themselves, but rather their adjustment rates are of primary interest. This, and the fact that one must deal with state-variable-dependent utilities, leads to a situation where the traditional Consumption-based Capital Asset Pricing Model techniques do not work. Under these circumstances, the proposed adjoint equation method for the shadow asset prices (co-states of the optimization problem) provides new insights regarding the dynamics of equilibrium asset prices, particularly the exchange rate.
Volume (Year): 3 (1996)
Issue (Month): 5 ()
|Contact details of provider:|| Web page: http://ces.utia.cas.cz|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:czx:journl:v:3:y:1996:i:5:id:32. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jozef Barunik)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.