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Taylor approximation of incomplete Radner equilibrium models

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journal contribution
posted on 30.09.2014, 00:00 by Jin Hyuk Choi, Kasper Larsen

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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Publisher Statement

The final publication is available at Springer via http://dx.doi.org/10.1007/s00780-015-0268-9

Date

30/09/2014

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