Endogenous Inverse Demand Functions

Maxim Bichuch () and Zachary Feinstein ()
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Maxim Bichuch: Department of Applied Mathematics and Statistics, Johns Hopkins University, Baltimore, Maryland 21218
Zachary Feinstein: School of Business, Stevens Institute of Technology, Hoboken, New Jersey 07030

Operations Research, 2022, vol. 70, issue 5, 2702-2714

Abstract: In this work we present an equilibrium formulation for price impacts. This is motivated by the Bühlmann equilibrium in which assets are sold into a system of market participants, for example, a fire sale in systemic risk, and can be viewed as a generalization of the Esscher premium. Existence and uniqueness of clearing prices for the liquidation of a portfolio are studied. We also investigate other desired portfolio properties including monotonicity and concavity. Price per portfolio unit sold is also calculated. In special cases, we study price impacts generated by market participants who follow the exponential utility and power utility.

Keywords: Financial Engineering; inverse demand function; price impacts; risk sharing; equilibrium liquidation; fire sale (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:70:y:2022:i:5:p:2702-2714

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