Computing Equilibria in Stochastic Finance Economies
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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Volume (Year): 15 (2000)
Issue (Month): 1-2 (April)
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