Analyzing Equilibrium in Incomplete Markets with Model Uncertainty

29 Pages Posted: 27 Jul 2015

Multiple version iconThere are 2 versions of this paper

Date Written: July 26, 2015

Abstract

In this paper, we analyze equilibrium in incomplete markets of random endowments by adopting utility indifference pricing and utility-based pricing. Addressing model uncertainty, we also consider agents who adopt max/min expected utility and a risk management policy. Using this framework, we demonstrate the existence of equilibrium. Moreover, we clarify the differences in the features of equilibria derived using these methods. Further, we show that the traded amount of random endowments in equilibrium by indifference pricing depends on the level of risk aversion, initial capital, and agents’ risk limits.

Keywords: Utility indifference pricing, Utility-based pricing, Partial equilibrium, Model uncertainty, Maxmin expected utility

JEL Classification: G13, C62, D81

Suggested Citation

Yoshikawa, Daisuke, Analyzing Equilibrium in Incomplete Markets with Model Uncertainty (July 26, 2015). Available at SSRN: https://ssrn.com/abstract=2635951 or http://dx.doi.org/10.2139/ssrn.2635951

Daisuke Yoshikawa (Contact Author)

Hokkai-Gakuen University ( email )

4-1-40, Asahi-machi, Toyohira-ku
Sapporo-shi
Hokkai-do, 062-8605
Japan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
42
Abstract Views
464
PlumX Metrics