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Computing Equilibria in Stochastic Finance Economies

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  • Kubler, Felix
  • Schmedders, Karl

Abstract

We describe a homotopy algorithm for the computation of equilibria in Stochastic Finance Economies. The algorithm solves a nonlinear system of equations consisting of the first-order conditions of the agents' utility maximization problems and market-clearing conditions. Moreover, we discuss the use of a straightforward homotopy approach for local comparative statics. Using our methods we evaluate price, volatility, and welfare effects of options in incomplete asset markets. Citation Copyright 2000 by Kluwer Academic Publishers.

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  • Kubler, Felix & Schmedders, Karl, 2000. "Computing Equilibria in Stochastic Finance Economies," Computational Economics, Springer;Society for Computational Economics, vol. 15(1-2), pages 145-172, April.
    • Handle: RePEc:kap:compec:v:15:y:2000:i:1-2:p:145-72
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    Cited by:

    1. Alessandro, CITANNA & SCHMEDDERS, Karl, 2002. "Controlling price volatility through financial innovation," HEC Research Papers Series 749, HEC Paris.
    2. Covarrubias, Enrique, 2013. "The number of equilibria of smooth infinite economies," Journal of Mathematical Economics, Elsevier, vol. 49(4), pages 263-265.
    3. Kubler, Felix & Schmedders, Karl, 2010. "Competitive equilibria in semi-algebraic economies," Journal of Economic Theory, Elsevier, vol. 145(1), pages 301-330, January.
    4. Dong Chul Won, 2019. "A New Characterization of Equilibrium in a Multi-period Finance Economy: A Computational Viewpoint," Computational Economics, Springer;Society for Computational Economics, vol. 53(1), pages 367-396, January.
    5. Susan Schommer, 2013. "Computing equilibria in economies with incomplete markets, collateral and default penalties," Annals of Operations Research, Springer, vol. 206(1), pages 367-383, July.
    6. Schmedders, Karl, 1998. "Computing equilibria in the general equilibrium model with incomplete asset markets," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1375-1401, August.
    7. Cao, Dan & Evans, Martin & Lua, Wenlan, 2020. "Real Exchange Rate Dynamics Beyond Business Cycles," MPRA Paper 99054, University Library of Munich, Germany, revised 10 Mar 2020.
    8. Esteban-Bravo, Mercedes, 2004. "An interior point algorithm for computing equilibria in economies with incomplete asset markets," DEE - Working Papers. Business Economics. WB wb046023, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    9. Eaves, B. Curtis & Schmedders, Karl, 1999. "General equilibrium models and homotopy methods," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1249-1279, September.

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