BIFURCATION METHODS FOR ASSET MARKET EQUILIBRIUM ANALYSIS

Kenneth Judd and Sy-Ming Guu

No 131, Computing in Economics and Finance 2000 from Society for Computational Economics

Abstract: Computing equilibrium in markets with incomplete asset spanning is difficult to do in general. In real markets the amount of uncertainty which occurs between trading periods is relatively small. We use bifurcation methods to derive Taylor series expansions which are asymptotically valid approximations of equilibrium as the amount of uncertainty goes to zero. We show that these expansions are good approximations even at realistic variances. We use them to show that the derivative asset which is optimal from the investors' point of view is asympotically equal to the square of the value of the underlying asset.

Date: 2000-07-05
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf0:131

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