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Equilibrium Pricing in Incomplete Markets

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  • Elyès Jouini
  • Abdelhamid Bizid

Abstract

Given exogenously the price process of some assets, we constrain the price process of other assets, which are characterized 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

  • Elyès Jouini & Abdelhamid Bizid, 2003. "Equilibrium Pricing in Incomplete Markets," Finance 0312004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0312004
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    Cited by:

    1. Elyes Jouini, 2020. "Equilibrium pricing and market completion: a counterexample," PSE-Ecole d'économie de Paris (Postprint) halshs-03048797, HAL.
    2. 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.
    3. Elyes Jouini, 2020. "Equilibrium pricing and market completion: a counterexample," Economics Bulletin, AccessEcon, vol. 40(3), pages 1963-1969.

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    More about this item

    Keywords

    equilibrium pricing; incomplete markets; state-price deflator; arbitrage pricing; stochastic volatility;
    All these keywords.

    JEL classification:

    • G - Financial Economics

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