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Arbitrage pricing in non-Walrasian financial markets

Author

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  • Andrés Carvajal

    (University of California, Davis
    Rio de Janeiro)

Abstract

This paper presents conditions under which a model of non-Walrasian trading in financial markets separates the real equilibrium outcomes from the details of the financial structure, and hence permits the pricing of non-traded derivatives by means of no-arbitrage formulæ. I demonstrate that these conditions hold in a number of standard models, including the canonical settings of Cournot and Stackelberg. In contrast, Nash equilibrium in the model of strategic market games proposed by Shapley and Shubik does not allow for the pricing of non-traded derivatives, and I explain why this is the case.

Suggested Citation

  • Andrés Carvajal, 2018. "Arbitrage pricing in non-Walrasian financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 951-978, December.
    • Handle: RePEc:spr:joecth:v:66:y:2018:i:4:d:10.1007_s00199-017-1074-8
    DOI: 10.1007/s00199-017-1074-8
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    References listed on IDEAS

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    1. Leonidas Koutsougeras & Konstantinos Papadopoulos, 2004. "Arbitrage and equilibrium in strategic security markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(3), pages 553-568, March.
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    3. Koutsougeras, L., 1999. "A Remark on the Number of Trading Posts in Strategic Market Games," Discussion Paper 1999-04, Tilburg University, Center for Economic Research.
    4. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-968, October.
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    12. Peck, James, 2014. "A battle of informed traders and the market game foundations for rational expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 88(C), pages 153-173.
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    Cited by:

    1. Emy Lécuyer & Victor Filipe Martins da Rocha, 2022. "Convex Asset Pricing," Working Papers hal-03916844, HAL.

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    More about this item

    Keywords

    Non-competitive behavior; Arbitrage pricing; Derivative pricing; Strategic market games;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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