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Elimination of arbitrage states in asymmetric information models

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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. This article provides a dual behavior of the one studied in Cornet and De Boisdeffre (2002)

Suggested Citation

  • 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.
  • Handle: RePEc:mse:cesdoc:09078
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    More about this item

    Keywords

    Arbitrage; incomplete markets; asymmetric information; information revealed by prices;

    JEL classification:

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

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