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Risky Arbitage, Asset Prices, and Externalities

Author

Listed:
  • Cuong Le Van

    (CNRS, CERMSEM, University of Paris 1)

  • Frank H. Page, Jr.

    (Department of Finance, University of Alabama)

  • Myrna Wooders

    (Department of Economics, Vanderbilt University)

Abstract

We introduce a no-risky-arbitrage price (NRAP) condition for asset market models allowing both unbounded short sales and externalities such as trading volume. We then demonstrate that the NRAP condition is sufficient for the existence of competitive equilibrium in the presence of externalities. Moreover, we show that if all risky arbitrages are utility increasing, then the NRAP condition characterizes competitive equilibrium in the presence of externalities.

Suggested Citation

  • Cuong Le Van & Frank H. Page, Jr. & Myrna Wooders, 2005. "Risky Arbitage, Asset Prices, and Externalities," Vanderbilt University Department of Economics Working Papers 0524, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:0524
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    References listed on IDEAS

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    1. Donald J. Brown & Jan Werner, 1995. "Arbitrage and Existence of Equilibrium in Infinite Asset Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 101-114.
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    3. Le Van, C. & Page, F.H.Jr. & Wooders, M., 2001. "Arbitrage and Equilibrium in Economies with Externalities," The Warwick Economics Research Paper Series (TWERPS) 588, University of Warwick, Department of Economics.
    4. Page, Frank Jr., 1996. "Arbitrage and asset prices," Mathematical Social Sciences, Elsevier, vol. 31(3), pages 183-208, June.
    5. Dana, Rose-Anne & Le Van, Cuong & Magnien, Francois, 1999. "On the Different Notions of Arbitrage and Existence of Equilibrium," Journal of Economic Theory, Elsevier, vol. 87(1), pages 169-193, July.
    6. PageJr., Frank H. & Wooders, Myrna H. & Monteiro, Paulo K., 2000. "Inconsequential arbitrage," Journal of Mathematical Economics, Elsevier, vol. 34(4), pages 439-469, December.
    7. Bonnisseau, J.M., 1995. "Existence of Equilibria in Economies with Externalities and Non Convexities," Papiers d'Economie Mathématique et Applications 95.45, Université Panthéon-Sorbonne (Paris 1).
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    9. Monique Florenzano, 2007. "General equilibrium," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00250167, HAL.
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    Cited by:

    1. Jean-Michel Grandmont, 2013. "Tribute to Cuong Le Van," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 5-10, March.

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    More about this item

    Keywords

    Risky arbitrage; competitive equilibria; viable asset prices;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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