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Taylor approximation of incomplete Radner equilibrium models

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  • Jin Hyuk Choi
  • Kasper Larsen

Abstract

In the setting of exponential investors and uncertainty governed by Brownian motions we first prove the existence of an incomplete equilibrium for a general class of models. We then introduce a tractable class of exponential-quadratic models and prove that the corresponding incomplete equilibrium is characterized by a coupled set of Riccati equations. Finally, we prove that these exponential-quadratic models can be used to approximate the incomplete models we studied in the first part.

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  • Jin Hyuk Choi & Kasper Larsen, 2013. "Taylor approximation of incomplete Radner equilibrium models," Papers 1310.2973, arXiv.org, revised Sep 2014.
    • Handle: RePEc:arx:papers:1310.2973
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    1. repec:dau:papers:123456789/13604 is not listed on IDEAS
    2. Christensen, Peter Ove & Larsen, Kasper & Munk, Claus, 2012. "Equilibrium in securities markets with heterogeneous investors and unspanned income risk," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1035-1063.
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    Cited by:

    1. Constantinos Kardaras & Hao Xing & Gordan v{Z}itkovi'c, 2015. "Incomplete stochastic equilibria for dynamic monetary utility," Papers 1505.07224, arXiv.org, revised Feb 2017.

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