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The Existence Of Equilibrium In A Financial Market With Transaction Costs

In: Quantitative Analysis In Financial Markets Collected Papers of the New York University Mathematical Finance Seminar

Author

Listed:
  • XING JIN

    (Institute of Systems Science, Academia Sinica, Beijing 100080, PR China)

  • FRANK MILNE

    (Department of Economics, Queen's University, Kingston, Ontario, Canada)

Abstract

This paper proves the existence of a general equilibrium in a financial model with transaction costs. A general equilibrium is shown to exist in a model with convex trading technology, in which the agents include consumers, production firms, brokers or dealers. When the trading technology is non-convex, an individual approximate equilibrium, introduced by Heller and Starr (1976), is proved in the above model. And, moreover, under a further assumption of finite p-convexity on the commodity excess demand correspondence, a general equilibrium for a non-convex exchange economy is obtained for an economy with consumers, brokers or dealers.

Suggested Citation

  • Xing Jin & Frank Milne, 1999. "The Existence Of Equilibrium In A Financial Market With Transaction Costs," World Scientific Book Chapters, in: Marco Avellaneda (ed.), Quantitative Analysis In Financial Markets Collected Papers of the New York University Mathematical Finance Seminar, chapter 14, pages 323-343, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812812599_0014
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    Cited by:

    1. Frank Milne & Edwin H. Neave, 2003. "A General Equilibrium Financial Asset Economy With Transaction Costs And Trading Constraints," Working Paper 1082, Economics Department, Queen's University.
    2. Martins-da-Rocha, Victor Filipe & Vailakis, Yiannis, 2008. "Endogenous Transaction Costs," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 680, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    3. Frank Milne, 2008. "Credit Crises, Risk Management Systems and Liquidity Modelling," Working Papers 1, John Deutsch Institute for the Study of Economic Policy.
    4. Shunming Zhang & Chunlei Xu & Xiaotie Deng, 2002. "Dynamic Arbitrage‐Free Asset Pricing with Proportional Transaction Costs," Mathematical Finance, Wiley Blackwell, vol. 12(1), pages 89-97, January.
    5. Frank Milne & Xing Jin, 2006. "Taxation And Transaction Costs In A General Equilibrium Asset Economy," Working Paper 1111, Economics Department, Queen's University.
    6. V. Martins-da-Rocha & Yiannis Vailakis, 2010. "Financial markets with endogenous transaction costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 65-97, October.

    More about this item

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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