Radner Equilibria under Ambiguous Volatility

Patrick Beißner
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Patrick Beißner: Center for Mathematical Economics, Bielefeld University
Authors registered in the RePEc Author Service: Patrick Beißner

No 493, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: The present paper considers a class of general equilibrium economies when the primitive uncertainty model features uncertainty about continuous-time volatility. This requires a set of mutually singular priors, which do not share the same null sets. For this setting we introduce an appropriate commodity space and the dual of linear and continuous price systems. All agents in the economy are heterogeneous in their preference for uncer- tainty. Each utility functional is of variational type. The existence of equi- librium is approached by a generalized excess utility fixed point argument. Such Arrow-Debreu allocations can be implemented into a Radner economy with continuous-time trading. Effective completeness of the market spaces al- ters to an endogenous property. Only mean unambiguous claims equivalently satisfying the classical martingale representation property build the marketed space.

Keywords: Knightian uncertainty; variational preferences; general equilibrium; mu- tually singular priors; dynamic consistency; volatility uncertainty; excess utility map; gross substi- tutes; risk adjusted priors; sublinear-expectation; Radner implementation; incomplete markets (search for similar items in EconPapers)
Pages: 48
Date: 2016-03-10
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (1)

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