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Equilibrium Pricing in Incomplete Markets

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  • Abdelhamid Bizid

    (CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Elyès Jouini

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

Given exogenously the price process of some asets, we constrain the price process of other assets, which are characterised by their final pay-offs. We deal with an incomplete market framework in a discrete time model and assume the existence of the equilibrium. In this setup, we derive restrictions on the state-price deflators and these restrictions do not depend on a particular choice of utility function. A stochastic volatility model is numerically investigated as an example. Our approach leads to an interval of admissible prices much better than the arbitrage pricing interval.

Suggested Citation

  • Abdelhamid Bizid & Elyès Jouini, 2005. "Equilibrium Pricing in Incomplete Markets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00176484, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00176484
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00176484
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    References listed on IDEAS

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    Cited by:

    1. Elyes Jouini, 2020. "Equilibrium pricing and market completion: a counterexample," Economics Bulletin, AccessEcon, vol. 40(3), pages 1963-1969.
    2. Elyes Jouini, 2020. "Equilibrium pricing and market completion: a counterexample," PSE-Ecole d'économie de Paris (Postprint) halshs-03048797, HAL.
    3. Tianyang Wang & James Dyer & Warren Hahn, 2015. "A copula-based approach for generating lattices," Review of Derivatives Research, Springer, vol. 18(3), pages 263-289, October.

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    Keywords

    incomplete markets; pricing;

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