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The Existence of Equilibrium in a Financial Market with Transaction Costs


  • Xing Jin
  • Frank Milne


This paper proves the existence of a general equilibrium in a financial model with transaction costs. The general equilibrium is shown to exist in a model with convex trading technology, in which the agents include consumers, production firms, brokers and dealers. When the trading technology is non-convex, an individual approximate equilibrium, introduced by Heller and Starr (1976), is proved in the above model. And, moreover, under a further assumption of finitep-convexity on the commodity excess demand correspondence, the general equilibium for a non-convex exchange economy is obtained for an economy with consumers, brokers and dealers.

Suggested Citation

  • Xing Jin & Frank Milne, 1996. "The Existence of Equilibrium in a Financial Market with Transaction Costs," Working Papers 934, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:934

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    References listed on IDEAS

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    Cited by:

    1. V. Filipe MARTINS-DA-ROCHA & YIANNIS VAILAKIS, 2008. "Endogenous Transaction Costs," Discussion Papers 0810, Exeter University, Department of Economics.
    2. Frank Milne & Edwin Neave, 2003. "A General Equilibrium Financial Asset Economy with Transaction Costs and Trading Constraints," Working Papers 1082, Queen's University, Department of Economics.
    3. Frank Milne, 2008. "Credit Crises, Risk Management Systems and Liquidity Modelling," Working Papers 1, John Deutsch Institute for the Study of Economic Policy.
    4. Frank Milne & Xing Jin, 2006. "Taxation and Transaction Costs in a General Equilibrium Asset Economy," Working Papers 1111, Queen's University, Department of Economics.
    5. V. Martins-da-Rocha & Yiannis Vailakis, 2010. "Financial markets with endogenous transaction costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 65-97, October.

    More about this item


    arbitrage; general equilibrium; transaction cost; individual approximate equilibrium; finite p-convexity;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)


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