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Elimination of Arbitrage States in Asymmetric Information Models

Author

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  • Bernard Cornet

    (Department of Economics, The University of Kansas)

  • Lionel D Boisdeffre

    (INSEE, Paris and Universite de Paris 1)

Abstract

In a financial economy with asymmetric information and incomplete markets, we study how agents, having no model of how equilibrium prices are determined, may still refine their information by eliminating sequentially "arbitrage state(s)", namely, the state(s) which would grant the agent an arbitrage, if realizable.

Suggested Citation

  • 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.
  • Handle: RePEc:kan:wpaper:200912
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    File URL: http://www2.ku.edu/~kuwpaper/2009Papers/200912.pdf
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    Keywords

    Arbitrage; Incomplete markets; Asymmetric information; Information revealed by prices;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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