We consider a Lucas asset-pricing model with heterogeneous agents, exogenous labor income, and a finite number of exogenous shocks. Although agents are infinitely lived, endowments and dividends are time-invariant functions of the exogenous shock alone and are thus restricted to lie in a...

Transaction costs on financial markets may have important consequences for volumes of trade, asset pricing, and welfare. This paper introduces an algorithm for the computation of equilibria in the general equilibrium model with incomplete asset markets and transaction costs. We show that...

In a three-period finite exchange economy with incomplete financial markets and retrading, we study the effects of the degree of incompleteness and of changes in the financial structure on asset price volatility. In what are essentially no aggregate risk economies, asset price volatility is a...

The purpose of this paper is to analyze endogenous asset innovation by an entrepreneurial exchange owner in a general equilibrium model of incomplete security markets with financial transaction fees. A monopolistic market maker has the technology to introduce a new option into the economy and...