Equilibria in exchange economies with financial constraints: beyond the Cass trick

• Autor(a) principal: Martins-da-Rocha, Victor Filipe
• Data de Publicação: 2005
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Institucional do FGV (FGV Repositório Digital)
• Texto Completo: http://hdl.handle.net/10438/12970
• topic: Exchange economies; Incomplete financial markets; Purely financial securities; Nominal assets; Constrained portfolios; Collectively frictionless financial markets; Equilibrium security prices; Arbitrage-free security prices; Economia; Mercado financeiro - Modelos matemáticos

We consider an exchange economy under incomplete financiaI markets with purely financiaI securities and finitely many agents. When portfolios are not constrained, Cass [4], Duffie [7] and Florenzano-Gourdel [12] proved that arbitrage-free security prices fully characterize equilibrium security prices. This result is based on a trick initiated by Cass [4] in which one unconstrained agent behaves as if he were in complete markets. This approach is unsatisfactory since it is asymmetric and no more valid when every agent is subject to frictions. We propose a new and symmetric approach to prove that arbitrage-free security prices still fully characterize equilibrium security prices in the more realistic situation where the financiaI market is constrained by convex restrictions, provided that financiaI markets are collectively frictionless.