Incomplete-Market Equilibria Solved Recursively on anEvent Tree

We develop a method that allows one to compute incomplete-market equilibria routinely forMarkovian equilibria (when they exist). The main difficulty to be overcome arises from the setof state variables. There are, of course, exogenous state variables driving the economy but, in anincomplete market, there are also endogenous state variables, which introduce path dependence.[...]

MoreLess

Year of publication:	2008-12-17
Authors:	Dumas, Bernard ; Lyasoff, Andrew
Institutions:	National Centre of Competence in ResearchFinancial Valuation and Risk Management
Subject:	Kreditmarkt \| Unvollkommener Markt \| Incomplete markets \| Dynamische Optimierung \| Dynamic Programming \| Entscheidungsbaum \| decision tree

freely available

Full text |

More access options

Check Google Scholar

In German libraries (KVK)

I need help

I. The first-order conditions at a node
A. The economy
B. The dual first-order conditions
C. The equilibrium
II. Recursivity
III. A homogeneity property, a change of state variables and the interpolation
IV. Examples of the Basak-and-Cuoco variety
A. The Basak-and-Cuoco (1998) equilibrium
B. The “reverse” Basak-Cuoco equilibrium
C. Wu’s example of buy-and-hold investors
V. Other examples
A. Example #2 in Cuoco and He (2001) and a comment on the method
B. The Heaton and Lucas (1996) example
VI. Problematic examples and issues of existence
A. Non existence of equilibrium at isolated point
B. Non existence of recursive equilibrium
VII. Conclusion
VIII. Bibliography
Appendix 1: The event tree
Appendix 2: The dynamic programming principle holds
Appendix 3: Proof of Theorem 1
Appendix 4: Detailed Proof of Lemma 1.

Persistent link: https://www.econbiz.de/10005868691