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Pricing and optimality with default spreads

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  • Fajardo, José

Abstract

In this paper we study the asset pricing and individual optimality problem in a two period incomplete markets economy where default is allowed but there are utility penalties and collateral requirements.

Suggested Citation

  • Fajardo, José, 2009. "Pricing and optimality with default spreads," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 686-692, May.
    • Handle: RePEc:eee:quaeco:v:49:y:2009:i:2:p:686-692
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    References listed on IDEAS

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    1. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2005. "Default and Punishment in General Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 1-37, January.
    2. Aloisio Araujo & Mário Rui Páscoa & Juan Pablo Torres-Martínez, 2002. "Collateral Avoids Ponzi Schemes in Incomplete Markets," Econometrica, Econometric Society, vol. 70(4), pages 1613-1638, July.
    3. Araujo, Aloisio & Fajardo, Jose & Pascoa, Mario R., 2005. "Endogenous collateral," Journal of Mathematical Economics, Elsevier, vol. 41(4-5), pages 439-462, August.
    4. Pradeep Dubey & John Geanakoplos & Martin Shubik, 1988. "Default and Efficiency in a General Equilibrium Model with Incomplete Markets," Cowles Foundation Discussion Papers 879R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1989.
    5. Zame, William R, 1993. "Efficiency and the Role of Default When Security Markets Are Incomplete," American Economic Review, American Economic Association, vol. 83(5), pages 1142-1164, December.
    6. Orrillo, Jaime, 2005. "Collateral once again," Economics Letters, Elsevier, vol. 87(1), pages 27-33, April.
    7. Fajardo, Jose, 2005. "A note on arbitrage and exogenous collateral," Mathematical Social Sciences, Elsevier, vol. 50(3), pages 336-341, November.
    8. Felix Kubler & Karl Schmedders, 2003. "Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral," Econometrica, Econometric Society, vol. 71(6), pages 1767-1793, November.
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    Cited by:

    1. José Fajardo, 2010. "Behavioral arbitrage with collateral and uncertain deliveries," Annals of Finance, Springer, vol. 6(2), pages 241-254, March.

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