Arbitrage and Equilibrium with Portfolio Constraints

Bernard Cornet and Ramu Gopalan ()

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

Abstract: We consider a multiperiod financial exchange economy with nominal assets and restricted participation, where each agent's portfolio choice is restricted to a closed, convex set containing zero, as in Siconolfi (1989). Using an approach that dates back to Cass (1984, 2006) in the unconstrained case, we seek to isolate arbitrage-free asset prices that are aloso quasi-equilibrium or equilibrium asset prices. In the presence of such portfolio restrictions, we need to confine our attention to aggregate arbitrage-free asset prices, i.e., for which there is no arbitrage in the space of marketed portfolios. Our main result states that such asset prices are quasi-equilibrium prices under standard assumptions and then deduce that they are equilibrium prices under a suitable condition on the accessibility of payoffs by agents, i.e., every payoff that is attainable in the aggregate can be marketed through some agent's portfolio set. This latter result extends previous work by Martins-da-Rocha and Triki (2005).

Keywords: arbitage-free asset prices; Stochastic financial exchange economies; incomplete markets; financial equilibrium; constrained portfolios; multiperiod models; arbitage-free asset prices.; Marchés incomplets; équilibre financier; opportunité d'arbitrage. (search for similar items in EconPapers)
Date: 2009-10
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00441873
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Published in 2009

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Related works:
Journal Article: Arbitrage and equilibrium with portfolio constraints (2010)
Working Paper: Arbitrage and equilibrium with portfolio constraints (2010)
Working Paper: Arbitrage and equilibrium with portfolio constraints (2010)
Working Paper: Arbitrage and equilibrium with portfolio constraints (2010)
Working Paper: Arbitrage and Equilibrium with Portfolio Constraints (2009)
Working Paper: Arbitrage and Equilibrium with Portfolio Constraints (2009)
Working Paper: Arbitrage and equilibrium with portofolio constraints (2009)
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