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Another Proof of the Existence of GEI Equilibrium with Default and Exogenous Collateral

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  • Orrilo, Jaime

Abstract

The existence of equilibria in a GEI model with default where short sales are backed by collateral (henceforth: exogenous collateral economy), has been demonstrated by Geanakoplos and Zame in a 2002 version of their paper (“Collateral, Default and Market Crashes”). On the other hand, Araújo et al. (2005) have recently provided a character- ization, via non arbitrage, of prices of defaultable assets backed by collateral. The aim of this paper is to provide an alternative proof of the existence of equilibria in an exoge- nous collateral economy by combining the demand approach used by Geanakoplos and Zame, and the characterization of collateralized asset prices offered by Araújo, Fajardo and Pascoa.

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  • Orrilo, Jaime, 2006. "Another Proof of the Existence of GEI Equilibrium with Default and Exogenous Collateral," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 26(1), May.
    • Handle: RePEc:sbe:breart:v:26:y:2006:i:1:a:2501
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