Incomplete Stochastic Equilibria with Exponential Utilities: Close to Pareto Optimality
35 Pages Posted: 28 May 2015
Date Written: May 28, 2015
We study existence and uniqueness of continuous-time stochastic Radner equilibria in an incomplete markets model. An assumption of "smallness'' type - imposed through the new notion of "closeness to Pareto optimality'' - is shown to be sufficient for existence and uniqueness. Central role in our analysis is played by a fully-coupled nonlinear system of quadratic BSDEs.
Keywords: backward stochastic differential equations, general equilibrium, incomplete markets, Radner equilibrium, systems of BSDE
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