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On Agents' Agreement and Partial-Equilibrium Pricing in Incomplete Markets

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  • Michail Anthropelos
  • Gordan Zitkovic

Abstract

We consider two risk-averse financial agents who negotiate the price of an illiquid indivisible contingent claim in an incomplete semimartingale market environment. Under the assumption that the agents are exponential utility maximizers with non-traded random endowments, we provide necessary and sufficient conditions for negotiation to be successful, i.e., for the trade to occur. We also study the asymptotic case where the size of the claim is small compared to the random endowments and we give a full characterization in this case. Finally, we study a partial-equilibrium problem for a bundle of divisible claims and establish existence and uniqueness. A number of technical results on conditional indifference prices are provided.

Suggested Citation

  • Michail Anthropelos & Gordan Zitkovic, 2008. "On Agents' Agreement and Partial-Equilibrium Pricing in Incomplete Markets," Papers 0803.2198, arXiv.org.
    • Handle: RePEc:arx:papers:0803.2198
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    References listed on IDEAS

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    Cited by:

    1. Michail Anthropelos & Nikolaos E. Frangos & Stylianos Z. Xanthopoulos & Athanasios N. Yannacopoulos, 2008. "On contingent claims pricing in incomplete markets: A risk sharing approach," Papers 0809.4781, arXiv.org, revised Feb 2012.
    2. Michail Anthropelos & Michael Kupper & Antonis Papapantoleon, 2015. "An equilibrium model for spot and forward prices of commodities," Papers 1502.00674, arXiv.org, revised Jan 2017.
    3. Michail Anthropelos & Constantinos Kardaras & Georgios Vichos, 2020. "Effective risk aversion in thin risk‐sharing markets," Mathematical Finance, Wiley Blackwell, vol. 30(4), pages 1565-1590, October.
    4. Michail Anthropelos & Scott Robertson & Konstantinos Spiliopoulos, 2015. "The pricing of contingent claims and optimal positions in asymptotically complete markets," Papers 1509.06210, arXiv.org, revised Sep 2016.
    5. Michail Anthropelos, 2012. "The Effect of Market Power on Risk-Sharing," Papers 1206.0384, arXiv.org, revised May 2016.
    6. Michail Anthropelos & Gordan Zitkovic, 2009. "Partial Equilibria with Convex Capital Requirements: Existence, Uniqueness and Stability," Papers 0901.3318, arXiv.org.
    7. Michail Anthropelos & Gordan Žitković, 2010. "Partial equilibria with convex capital requirements: existence, uniqueness and stability," Annals of Finance, Springer, vol. 6(1), pages 107-135, January.
    8. Michail Anthropelos, 2011. "Forward Exponential Performances: Pricing and Optimal Risk Sharing," Papers 1109.3908, arXiv.org, revised Mar 2013.
    9. Michail Anthropelos & Scott Robertson & Konstantinos Spiliopoulos, 2021. "Optimal investment, derivative demand, and arbitrage under price impact," Mathematical Finance, Wiley Blackwell, vol. 31(1), pages 3-35, January.
    10. Michail Anthropelos & Scott Robertson & Konstantinos Spiliopoulos, 2018. "Optimal Investment, Demand and Arbitrage under Price Impact," Papers 1804.09151, arXiv.org, revised Dec 2018.

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