Asymptotic Methods for Asset Market Equilibrium Analysis

Kenneth Judd and Sy-Ming Guu

No 8135, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: General equilibrium analysis is difficult when asset markets are incomplete. We make the simplifying assumption that uncertainty is small and use bifurcation methods to compute Taylor series approximations for asset demand and asset market equilibrium. A computer must be used to derive these approximations since they involve large amounts of algebraic manipulation. To illustrate this method, we apply it to analyzing the allocative, price, and welfare effects of introducing a new derivative security. We find that the introduction of any derivative will raise the value of the risky asset relative to bonds.

JEL-codes: C63 D52 (search for similar items in EconPapers)
Date: 2001-02
New Economics Papers: this item is included in nep-dge, nep-fin and nep-fmk
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (81)

Published as Judd, Kenneth L. and Sy-Ming Guu. “Asymptotic Methods for Asset Market Equilibrium Analysis." Economic Theory 18 (2001): 127-157.

Downloads: (external link)
http://www.nber.org/papers/w8135.pdf (application/pdf)

Related works:
Journal Article: Asymptotic methods for asset market equilibrium analysis (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8135

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8135

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().