TY - JOUR
T1 - Equilibria with options
T2 - Existence and indeterminacy
AU - Krasa, Stefan
AU - Werner, Jan
N1 - *The research was carried out in part at the 1988 Bonn Workshop in Mathematical Economics. We are indebted to Professor Werner Hildenbrand for the invitation to participate. Financial support was provided by Deutsche Forschungsgemeinschaft, SFB 303 and Gottfried-Wilhelm-Leibnitz-Forderpreis.
PY - 1991/8
Y1 - 1991/8
N2 - This paper studies an economy in which trading takes place in spot commodity markets and incomplete futures markets for assets of various types. There are real assets (stocks or commodity futures), options on real assets, and a riskless nominal bond. We show that for a generic set of economies parametrized by consumers' endowments and structure of real assets, there exists an equilibrium. Moreover, we show that, generically, the set of equilibrium allocations of commodities contains a manifold of a high dimension. Even if the market structure is potentially complete (i.e., the number of assets, including options, equals or exceeds the number of states of nature) and the Arrow-Debreu equilibrium can be achieved through sequential trading in spot and futures markets, there are multiple (inefficient) equilibria without full rank of the asset payoff matrix.
AB - This paper studies an economy in which trading takes place in spot commodity markets and incomplete futures markets for assets of various types. There are real assets (stocks or commodity futures), options on real assets, and a riskless nominal bond. We show that for a generic set of economies parametrized by consumers' endowments and structure of real assets, there exists an equilibrium. Moreover, we show that, generically, the set of equilibrium allocations of commodities contains a manifold of a high dimension. Even if the market structure is potentially complete (i.e., the number of assets, including options, equals or exceeds the number of states of nature) and the Arrow-Debreu equilibrium can be achieved through sequential trading in spot and futures markets, there are multiple (inefficient) equilibria without full rank of the asset payoff matrix.
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U2 - 10.1016/0022-0531(91)90124-M
DO - 10.1016/0022-0531(91)90124-M
M3 - Article
AN - SCOPUS:0009324465
SN - 0022-0531
VL - 54
SP - 305
EP - 320
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 2
ER -