Market clearing, utility functions, and securities prices

Roberto Raimondo ()

Economic Theory, 2005, vol. 25, issue 2, 265-285

Abstract: We prove the existence of equilibrium in a continuous-time finance model; our results include the case of dynamically incomplete markets as well as dynamically complete markets. In addition, we derive explicitly the stochastic process describing securities prices. The price process depends on the risk-aversion characteristics of the utility function, as well as on the presence of additional sources of wealth (including endowments and other securities). With a single stock, zero endowment in the terminal period, and Constant Relative Risk Aversion (CRRA) utility, the price process is geometric Brownian motion; in essentially any other situation, the price process is not a geometric Brownian motion. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Continuous time GEI; Asset pricing; Market clearing. (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s00199-003-0445-5

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