Financial equilibrium with non-linear valuations

Dilip B. Madan ()
Additional contact information
Dilip B. Madan: University of Maryland

Annals of Finance, 2018, vol. 14, issue 2, No 3, 221 pages

Abstract: Abstract Classical Arrow Debreu equilibria employ budget feasibility to require individuals to ensure excess supplies to be nonnegative in value using the single equilibrium price system for valuation purposes. Yet by the selection of state contingent prices, they seek excess supplies that are nonnegative in each component, and not just the value. A financial equilibrium, on the other hand, defines acceptable economic risks as excess supplies that are nonnegative in value for a number of prespecified valuation price systems. The collection of prespecified valuation price systems may be referred to as features for which clearing is sought. The number of features will generally be less than the number of states. It is then shown that by also defining budget feasibility nonlinearly one may construct a financial equilibrium with fewer securities than there are features to be cleared.

Keywords: Acceptable risks; Nonlinear conditional expectation; Conic finance; Two price economy (search for similar items in EconPapers)
JEL-codes: D50 D51 G10 G12 G13 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10436-017-0312-1 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
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:kap:annfin:v:14:y:2018:i:2:d:10.1007_s10436-017-0312-1

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10436/PS2

DOI: 10.1007/s10436-017-0312-1

Access Statistics for this article

Annals of Finance is currently edited by Anne Villamil

More articles in Annals of Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().