Ergodic Markov equilibrium with incomplete markets and short sales

, H. B. ()
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, H. B.: Graduate School of Economics, Getulio Vargas Foundation
Authors registered in the RePEc Author Service: Luis H. B. Braido ()

Theoretical Economics, 2013, vol. 8, issue 1

Abstract: This paper studies recursive exchange economies with short sales. Agents maximize discounted expected utility. The asset structure is general and includes real securities, infinite-lived stocks, options, and other derivatives. The main result shows the existence of a competitive equilibrium process that is stationary and has an invariant ergodic measure. Ergodicity is required in finance for time series analysis of structural asset pricing models. This equilibrium property is difficult to obtain when heterogeneous agents can accumulate debt over time. Bounded marginal utility is shown to be a key condition for ergodicity in this setting.

Keywords: General equilibrium; incomplete markets; recursive; markov; stationary; ergodic; existence (search for similar items in EconPapers)
JEL-codes: D52 D80 D90 G10 (search for similar items in EconPapers)
Date: 2013-01-18
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Citations: View citations in EconPapers (7)

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