No-arbitrage, overlapping sets of priors and the existence of efficient allocations and equilibria in the presence of risk and ambiguity

Rose-Anne Dana () and Cuong Le van
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Rose-Anne Dana: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: The theory of existence of equilibrium with short-selling is reconsidered under risk and ambiguity modelled by risk averse variational preferences. A sufficient condition for existence of efficient allocations is that the relative interiors of the risk adjusted sets of expectations overlap. This condition is necessary if agents are not risk neutral at extreme levels of wealths either positive or negative. It is equivalent to the condition that there does not exist mutually compatible trades, with non negative expected value with respect to any risk adjusted prior, strictly positive for some agent and some prior. It is shown that the more uncertainty averse and the more risk averse, the more likely are efficient allocations and equilibria to exist.

Keywords: Uncertainty; risk; common prior; equilibria with short-selling; variational preferences.; variational preferences; Incertitude; risque; croyance commune; équilibre avec ventes à découvert; préférences variationnelles. (search for similar items in EconPapers)
Date: 2009-11
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00281582v2
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Published in 2009

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Working Paper: No-arbitrage, overlapping sets of priors and the existence of efficient allocations and equilibria in the presence of risk and ambiguity (2009)
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