We study an economy where there are two types of assets. Consumers' promises are the primitive defaultable assets secured by collateral chosen by the consumers themselves. The purchase of these personalized assets by Â¯- nancial intermediaries is Â¯nanced by selling back derivatives to consumers. We show that nonarbitrage prices of primitive assets are strict submartin- gales, whereas nonarbitrage prices of derivatives are supermartingales. Next we establish existence of equilibrium, without imposing bounds on short sales. The nonconvexity of the budget set is overcome by considering a continuum of agents
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- Fajardo, Jose, 2005.
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- Donald A. Walker (ed.), 2000. "Equilibrium," Books, Edward Elgar Publishing, volume 0, number 1585, May.
- Mariano Steinert & Juan Pablo Torres-Martínez, 2004. "General equilibrium existence with asset-backed securitization," Textos para discussão 490, Department of Economics PUC-Rio (Brazil).
- Elyégs Jouini & Hédi Kallal, 1995. "Arbitrage In Securities Markets With Short-Sales Constraints," Mathematical Finance, Wiley Blackwell, vol. 5(3), pages 197-232.
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