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Reaching Equilibrium in the Capital Asset Pricing Model


  • Flam, S.D.


We consider a two-period, one-good financial market, featuring variance-averse investors. Under fairly weak assumptions, like those imposed in the capital asset pricing model, we demonstrate how equilibrium may be approached and computed. As main argument we use the two-dimensionality of pricing and the Poincare-Bedixon theory on planar flows.

Suggested Citation

  • Flam, S.D., 2000. "Reaching Equilibrium in the Capital Asset Pricing Model," Norway; Department of Economics, University of Bergen 0700, Department of Economics, University of Bergen.
  • Handle: RePEc:fth:bereco:0700

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    References listed on IDEAS

    1. Evstigneev, I.V. & Flam, S.D., 2000. "Sharing Nonconvex Costs," Norway; Department of Economics, University of Bergen 1300, Department of Economics, University of Bergen.
    2. Bonnisseau, Jean-Marc & Cornet, Bernard, 1988. "Valuation equilibrium and pareto optimum in non-convex economies," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 293-308, April.
    3. Flam, S. D. & Jourani, A., 2003. "Strategic behavior and partial cost sharing," Games and Economic Behavior, Elsevier, vol. 43(1), pages 44-56, April.
    4. Foley, Duncan K, 1970. "Lindahl's Solution and the Core of an Economy with Public Goods," Econometrica, Econometric Society, vol. 38(1), pages 66-72, January.
    5. M. Ali Khan & Rajiv Vohra, 1987. "An Extension of the Second Welfare Theorem to Economies with Nonconvexities and Public Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 223-241.
    6. CORNET, Bernard, 1988. "Marginal cost pricing and Pareto optimality," CORE Discussion Papers 1988037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
    8. Flam, Sjur & Owen, Guillermo & Saboya, Martha, 2005. "The not-quite non-atomic game: Non-emptiness of the core in large production games," Mathematical Social Sciences, Elsevier, vol. 50(3), pages 279-297, November.
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    More about this item



    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing


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