The Market Selection Hypothesis is a principle which (informally) proposes that ‘less knowledgeable' agents are eventually eliminated from the market. This elimination may take the form of starvation (the proportion of output consumed drops to zero), or may take the form of going broke (the...

We consider a situation in which general financial products such as options, CDS, and other derivatives, are traded to investigate the effect of cross-ownerships on market stability. We prove the existence and uniqueness of a clearing payment vector under the assumption of the fictitious default...