From small markets to big markets

Laurence Carassus and Miklos Rasonyi

Papers from arXiv.org

Abstract: We study the most famous example of a large financial market: the Arbitrage Pricing Model, where investors can trade in a one-period setting with countably many assets admitting a factor structure. We consider the problem of maximising expected utility in this setting. Besides establishing the existence of optimizers under weaker assumptions than previous papers, we go on studying the relationship between optimal investments in finite market segments and those in the whole market. We show that certain natural (but nontrivial) continuity rules hold: maximal satisfaction, reservation prices and (convex combinations of) optimizers computed in small markets converge to their respective counterparts in the big market.

Date: 2019-07, Revised 2020-10
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1907.05593

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