Existence of equilibrium and price adjustments in a finance economy with incomplete markets

Dolf Talman () and Jacco Thijssen

No 79, Discussion Paper from Tilburg University, Center for Economic Research

Abstract: In this paper the standard two-period general equilibrium model with incomplete /nancial markets is considered. First, existence of equilibrium is proved using a stationary point argument on the set of no-arbitrage prices. Prices are normalized with respect to the market portfolio. The proof does not use the commonly applied normalization on the unit sphere or truncation of the set of prices. It is shown that there exists a connected set from an arbitrary price vector to an equilibrium. The path can be followed by a simplicial algorithm for stationary point problems on polytopes. It is argued that this algorithm can be interpreted as originating from a market-maker maximizing the value of excess demand.

JEL-codes: C62 C63 C68 D52 D58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-mac
Date: 2003
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Related works:
Journal Article: Existence of equilibrium and price adjustments in a finance economy with incomplete markets (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:kubcen:200379

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