Taylor approximation of incomplete Radner equilibrium models

Jin Choi () and Kasper Larsen ()

Finance and Stochastics, 2015, vol. 19, issue 3, 653-679

Abstract: In the setting of exponential investors and uncertainty governed by Brownian motions, we first prove the existence of an incomplete equilibrium for a general class of models. We then introduce a tractable class of exponential–quadratic models and prove that the corresponding incomplete equilibrium is characterized by a coupled set of Riccati equations. Finally, we prove that these exponential–quadratic models can be used to approximate the incomplete models we studied in the first part. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Continuous time; Interest rate; Market price of risk; Hölder spaces; Exponential utilities; 91G80; 35K59; 60G44; C62; G11 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s00780-015-0268-9

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