In a two-period pure exchange economy with financial assets, a temporary financial equilibrium is an equilibrium of the current spot and security markets given forecast functions of future prices and payoffs. The temporary equilibrium model can then be interpreted as an Arrow-Debreu economy...

In the context of standard two-period pure-exchange economies with sequential trade, this paper proposes a decentralized coordination mechanism for equilibriumexpectations, facilitated by local interactions between agents. Interactions are modelled stochastically by specifying a family of...

A dynamic stochastic model of global equilibrium, where countries outside the US face higher risk than the US itself, predicts current account surpluses in the RoW and US deficits. With Loss Aversion, such precautionary savings can cause substantial ‘global imbalances’, particularly...

This paper solves the pricing problem of an merging market debt contract in which the borrower’s economy is subject to rare event risk. Our model combines elements of a reduced form and a structural model of debt pricing. Rare event risk is modeled as a sudden event in fundamentals, and...

We study an economy with competitive commodity markets and exclusive pairwise contractual relations with moral hazard, where both the principal and the agent can be risk averse. We show existence of equilibria and their generic constrained suboptimality, by means of a change in the compensation...

We investigate a pure exchange atomless economy under uncertainty with emphasis on an epistemic point of view, where the traders are assumed to have a non-partitional information structure. We propose a generalized notion of rational expectations equilibrium for the economy and we show the core...

We consider a pure exchange economy under uncertainty in which the traders have the non-partition structure of information. They willing to trade the amounts of state-contingent commodities and they know their own expectations. Common knowledge of these conditions among all the traders can...

Let us consider a pure exchange economy under non-partitional information where the traders are assumed to have a reflexive and transitive information structure and to have strictly monotone preferences. We show the no speculation theorem: If the initial endowment is ex-ante Pareto optimal then...

Markowitz and Sharpe won the Nobel Prize in Economics more than a decade ago for the development of Mean-Variance analysis and the Capital Asset Pricing Model (CAPM). In the year2002, Kahneman won the Nobel Prize in Economics for the development of Prospect Theory....

Under the assumption of normally distributed returns, we analyzewhether the Cumulative Prospect Theory of Tversky and Kahneman (1992) is consistent with the Capital Asset Pricing Model. We find that in every financial market equilibrium the Security Market Line Theorem holds....