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Lookup NU author(s): Professor Mich Tvede
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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: (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.
Author(s): Cres H, Markeprand T, Tvede M
Publication type: Article
Publication status: Published
Journal: Economic Theory
Year: 2016
Volume: 62
Issue: 1
Pages: 201-219
Print publication date: 01/06/2016
Online publication date: 20/05/2015
Acceptance date: 07/05/2015
Date deposited: 08/05/2015
ISSN (print): 0938-2259
ISSN (electronic): 1432-0479
Publisher: Springer
URL: http://dx.doi.org/10.1007/s00199-015-0884-9
DOI: 10.1007/s00199-015-0884-9
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