Modeling of General International Financial Equilibrium in the Presence of Financial Futures: A Variational Inequality Approach

Anna Nagurney () and Stavros Siokos
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Anna Nagurney: Department of Finance and Operations Management, University of Massachusetts
Stavros Siokos: Department of Industrial Engineering and Operations Research, University of Massachusetts

Computing in Economics and Finance 1996 from Society for Computational Economics

Abstract: In this paper, a variational inequality approach for modeling competitive international financial equilibrium in the presence of financial futures is presented. The optimal composition of hedged and nonhedged assets and liabilities for each sector of each country, as well as the prices of all instruments and the exchange rates of all currencies, are obtained. We present both qualitative properties of the equilibrium pattern and propose an algorithm for the computation of the pattern, along with convergence results. This research is a first attempt to provide an integrated mathematical framework for the modeling and computation of general international financial equilibrium in the presence of futures, and expands the applicability of variational inequality theory to hedging strategies in international finance.

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