On the existence of financial equilibrium when beliefs are private
We consider a pure exchange financial economy, where agents, possibly asymetrically informed, face an "exogenous uncertainty", on the future state of nature, and an "endogenous uncertainty", on the future price in each random state. Namely, every agent forms private price anticipations on every prospective market, distributed along an idiosyncratic probability law. At a sequential equilibrium, all agents expect the "true" price as a possible outcome and elect optimal strategies at the first period, which clear on all markets at every time period. We show that, provided the endogenous uncertainty is large enough, a sequential equilibrium exists under standard conditions for all types of financial structures and information signals across agents. This result suggests that standard existence problems of sequential equilibrium models, following Hart (1975), stem from the perfect foresight assumption.
|Date of creation:||Sep 2012|
|Date of revision:|
|Publication status:||Published in Documents de travail du Centre d'Economie de la Sorbonne 2012.55 - ISSN : 1955-611X. 2012|
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- Bernard Cornet & Lionel De Boisdeffre, 2009.
"Elimination of arbitrage states in asymmetric information models,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
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- Bernard Cornet & Lionel De Boisdeffre, 2009. "Elimination of arbitrage states in asymmetric information models," Documents de travail du Centre d'Economie de la Sorbonne 09078, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Bernard Cornet & Lionel D Boisdeffre, 2009. "Elimination of Arbitrage States in Asymmetric Information Models," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200912, University of Kansas, Department of Economics, revised Dec 2009.
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