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No-arbitrage equilibria with differential information: an enlarged existence theorem

Author

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  • Lionel de Boisdeffre

    (CERMSEM)

Abstract

On the example of a pure-exchange financial economy with two periods, incomplete nominal-asset markets and differential information of the adverse selection's type, Cornet-De Boisdeffre (2002) introduced refined concepts of no-arbitrage prices and equilibria, which extended to the asymmetric information setting the classical concepts of the symmetric information literature. We now extend to the asymmetric information setting a standard existence property of symmetric information models. Namely, we prove that no-arbitrage prices fully characterize equilibrium security prices, in the sense that each equilibrium security price is arbitrage-free and each no-arbitrage price can be embedded as a no-arbitrage equilibrium security price. This result holds under the same standard conditions whether agents have symmetric or asymmetric information

Suggested Citation

  • Lionel de Boisdeffre, 2004. "No-arbitrage equilibria with differential information: an enlarged existence theorem," Cahiers de la Maison des Sciences Economiques b04102, Université Panthéon-Sorbonne (Paris 1).
    • Handle: RePEc:mse:wpsorb:b04102
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2004/B04102.pdf
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    References listed on IDEAS

    as
    1. Gale, D. & Mas-Colell, A., 1975. "An equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(1), pages 9-15, March.
    2. Monique Florenzano, 1999. "General equilibrium of financial markets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00085543, HAL.
    3. Monique Florenzano, 2007. "General equilibrium," Post-Print halshs-00250167, HAL.
    4. Gale, D. & Mas-Colell, A., 1979. "Corrections to an equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 6(3), pages 297-298, December.
    5. Bergstrom, Theodore C., 1976. "How to discard `free disposability' - at no cost," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 131-134, July.
    6. Lionel de Boisdeffre, 2004. "No-arbitrage equilibria with differential information: a proof of existence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03322655, HAL.
    7. Lionel de Boisdeffre, 2004. "No-arbitrage equilibria with differential information: a proof of existence," Cahiers de la Maison des Sciences Economiques b04035, Université Panthéon-Sorbonne (Paris 1).
    8. Cornet, Bernard & De Boisdeffre, Lionel, 2002. "Arbitrage and price revelation with asymmetric information and incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 38(4), pages 393-410, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    General equilibrium; asymmetric information; arbitrage; inference; existence of equilibrium;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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