Valuation in infinite-horizon sequential markets with portfolio constraints

Kevin Huang ()

Economic Theory, 2002, vol. 20, issue 1, 189-198

Abstract: We develop a theory of valuation of assets in sequential markets over an infinite horizon and discuss implications of this theory for equilibrium under various portfolio constraints. We characterize a class of constraints under which sublinear valuation and a modified present value rule hold on the set of non-negative payoff streams in the absence of feasible arbitrage. We provide an example in which valuation is non-linear and the standard present value rule fails in incomplete markets. We show that linearity and countable additivity of valuation hold when markets are complete. We present a transversality constraint under which valuation is linear and countably additive on the set of all payoff streams regardless of whether markets are complete or incomplete.

Keywords: Valuation; Infinite horizon; Portfolio constraint. (search for similar items in EconPapers)
JEL-codes: C61 D50 G10 (search for similar items in EconPapers)
Date: 2002-02-20
Note: Received: March 9, 2000; revised version: February 13, 2001
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Citations: View citations in EconPapers (1)

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