In this paper, we examine an exchange economy with a financial market composed of three assets: a share of a stock, an European call option written on the stock, and a riskless bond. The financial market is assumed to be incomplete and the option is not a redundant asset. In such a case the...

We provide results on the existence and uniqueness of equilibrium in dynamically incomplete financial markets in discrete time. Our framework allows for heterogeneous agents, unspanned random endowments and convex trading constraints. In the special case where all agents have preferences of the...

We propose an approach to the valuation of payoffs in general semimartingale models of financial markets where prices are nonnegative. Each asset price can hit 0; we only exclude that this ever happens simultaneously for all assets. We start from two simple, economically motivated axioms, namely...

The use of fundamentalist traders in the stock market models is problematic since fundamental values in the real world are unknown. Yet, in the literature to date, fundamentalists are often required to replicate key stylized facts. The authors present an agent-based model of the stock market in...

Stock markets play a dual role: help allocate capital by conveying information about firms' fundamentals and provide liquidity by quickly turning stocks into cash. We propose a trading model in which these two roles are endogenously related: more intensive use of stocks for liquidity affects...

In this paper we analyse the mean-variance hedging approach in an incomplete market under the assumption of additional market information, which is represented by a given, finite set of observed prices of non-attainable contingent claims. Due to no-arbitrage arguments, our set of investment...

Empirical measures of world consumption growth risk have failed to rationalize the cross-section of country equity returns. We propose a new factor, termed "the global consumption factor", to explain the patterns in risk premiums on international equity markets. We identify this factor as the...

We provide the first comprehensive analysis of option information for pricing the cross-section of stock returns by jointly examining extensive sets of firm and option characteristics. Using portfolio sorts and high-dimensional methods, we show that certain option measures have significant...

We consider a full equilibrium model in continuous time comprising a finite number of agents and tradable securities.We show that, if the agents' endowments are spanned by the securities and if the agents have entropic utilities, an equilibrium exists and the agents' optimal trading strategies...

We provide results on the existence and uniqueness of equilibrium in dynamically incomplete financial markets in discrete time. Our framework allows for heterogeneous agents, unspanned random endowments and convex trading constraints. In the special case where all agents have preferences of the...