IDEAS home Printed from
   My bibliography  Save this article

Construction of a state space for interrelated securities with an application to temporary equilibrium theory (*)


  • Philippe Henrotte

    (Groupe HEC, Departement Finance et Economie, F-78351 Jouy-en-Josas Cedex, FRANCE)


We construct an endogenous state space in an exchange economy with possibly infinite horizon. Every period agents trade securities whose payoffs depend on future dividends and asset prices. We reject the perfect foresight assumption on the ground that agents have not only limited knowledge of other individuals' endowments and preferences, but also limited capacity to compute equilibria. We choose instead absence of arbitrage as the principle which allows agents to determine if a system of future prices is possible. We give an alogrithm to compute the set of nonarbitrage prices every period, with both finite and infinite horizon. We then apply this endogenous structure of uncertainty to an infinite horizon temporary equilibrium model.

Suggested Citation

  • Philippe Henrotte, 1996. "Construction of a state space for interrelated securities with an application to temporary equilibrium theory (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(3), pages 423-459.
  • Handle: RePEc:spr:joecth:v:8:y:1996:i:3:p:423-459 Note: Received: June 21, 1995; revised version January 30, 1996

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    1. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
    2. Jordan, J. S., 1982. "The competitive allocation process is informationally efficient uniquely," Journal of Economic Theory, Elsevier, vol. 28(1), pages 1-18, October.
    3. Reichelstein, Stefan, 1984. "Incentive compatibility and informational requirements," Journal of Economic Theory, Elsevier, vol. 34(1), pages 32-51, October.
    4. Kalai, Ehud & Stanford, William, 1988. "Finite Rationality and Interpersonal Complexity in Repeated Games," Econometrica, Econometric Society, vol. 56(2), pages 397-410, March.
    5. Mount, Kenneth & Reiter, Stanley, 1974. "The informational size of message spaces," Journal of Economic Theory, Elsevier, vol. 8(2), pages 161-192, June.
    6. Reichelstein, Stefan & Reiter, Stanley, 1988. "Game Forms with Minimal Message Spaces," Econometrica, Econometric Society, vol. 56(3), pages 661-692, May.
    7. Kenneth R. Mount & Stanley Reiter, 1983. "On the Existence of a Locally Stable Dynamic Process With a Statically Minimal Message Space," Discussion Papers 550, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Chen, Pengyuan, 1992. "A lower bound for the dimension of the message space of the decentralized mechanisms realizing a given goal," Journal of Mathematical Economics, Elsevier, vol. 21(3), pages 249-270.
    9. Sonnenschein, Hugo, 1974. "An Axiomatic Characterization of the Price Mechanism," Econometrica, Econometric Society, vol. 42(3), pages 425-433, May.
    10. Stefan Reichelstein, 1981. "On the Informational Requirements for the Implementation of Social Choice Rules," Discussion Papers 507, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    11. Saari, Donald G & Simon, Carl P, 1978. "Effective Price Mechanisms," Econometrica, Econometric Society, vol. 46(5), pages 1097-1125, September.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Charalambos Aliprantis & Donald J. Brown & Werner, J., 1997. "Incomplete Derivative Markets and Portfolio Insurance," Cowles Foundation Discussion Papers 1126R, Cowles Foundation for Research in Economics, Yale University.
    2. Mordecai Kurz, 1997. "Social States of Belief and the Determinants of the Equity Risk Premium in A Rational Belief Equilibrium," Working Papers 97026, Stanford University, Department of Economics.
    3. Aliprantis, C. D. & Brown, D. J. & Werner, J., 2000. "Minimum-cost portfolio insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1703-1719, October.

    More about this item

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:8:y:1996:i:3:p:423-459. 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: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.