Incomplete Financial Markets and Jumps in Asset Prices

Hervé Crès, Tobias Markeprand and Mich Tvede
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Tobias Markeprand: Department of Economics, University of Copenhagen

No 09-12, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: A dynamic pure-exchange general equilibrium model with uncertainty is studied. Fundamentals are supposed to depend continuously on states of nature. It is shown that: 1. if financial markets are complete, then asset prices vary continuously with states of nature, and; 2. if financial markets are incomplete, jumps in asset prices may be unavoidable. Consequently incomplete financial markets may increase volatility in asset prices significantly.

Keywords: general equilibrium; financial markets; jumps in asset prices (search for similar items in EconPapers)
JEL-codes: D52 D53 G12 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2009-06
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: Incomplete financial markets and jumps in asset prices (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0912

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