Equilibrium Prices for Monetary Utility Functions

International Journal of Theoretical and Applied Finance, Vol. 11, No. 3, pp. 325-343, 2008

Posted: 2 Dec 2009

See all articles by Damir Filipović

Damir Filipović

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

Michael Kupper

Vienna Institute of Finance

Date Written: May 2008

Abstract

This paper provides sufficient and necessary conditions for the existence of equilibrium pricing rules for monetary utility functions under convex consumption constraints. These utility functions are characterized by the assumption of a fully fungible numeraire asset ("cash"). Each agent's utility is nominally shifted by exactly the amount of cash added to his endowment. We find the individual maximum utility that each agent is eligible for in an equilibrium and provide a game theoretic point of view for the fair allocation of the aggregate utility.

Keywords: Existence of equilibrium prices, monetary utility functions, Pareto optimal allocation, convex consumption constraints

Suggested Citation

Filipovic, Damir and Kupper, Michael, Equilibrium Prices for Monetary Utility Functions (May 2008). International Journal of Theoretical and Applied Finance, Vol. 11, No. 3, pp. 325-343, 2008. Available at SSRN: https://ssrn.com/abstract=1516077

Damir Filipovic

Ecole Polytechnique Fédérale de Lausanne ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

HOME PAGE: http://people.epfl.ch/damir.filipovic

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Michael Kupper (Contact Author)

Vienna Institute of Finance ( email )

Nordbergstrasse 15
Vienna, 1090
Austria

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