Incomplete financial markets and jumps in asset prices

Crès, Hervé, Markeprand, Tobias and Tvede, Mich (2016) Incomplete financial markets and jumps in asset prices. Economic Theory, 62 (1). pp. 201-219. ISSN 1432-0479

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Abstract

For incomplete financial markets, jumps in both prices and consumption can be unavoidable. We consider pure-exchange economies with infinite horizon, discrete time, uncertainty with a continuum of possible shocks at every date. The evolution of shocks follows a Markov process, and fundamentals depend continuously on shocks. It is shown that: (1) equilibria exist; (2) for effectively complete financial markets, asset prices depend continuously on shocks; and (3) for incomplete financial markets, there is an open set of economies U such that for every equilibrium of every economy in U, asset prices at every date depend discontinuously on the shock at that date.

Item Type: Article
Uncontrolled Keywords: financial markets, general equilibrium, jumps in asset prices
Faculty \ School: Faculty of Social Sciences > School of Economics
Related URLs:
Depositing User: Pure Connector
Date Deposited: 04 May 2017 05:10
Last Modified: 22 Apr 2020 03:57
URI: https://ueaeprints.uea.ac.uk/id/eprint/63377
DOI: 10.1007/s00199-015-0884-9

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