Incomplete Markets with Endogenous Portfolio Constraints and Redundant Assets
Seoul Journal of Economics 27 (No. 4 2014): 469-488
20 Pages Posted: 26 Nov 2014
Date Written: November 30, 2014
Abstract
This paper shows that a competitive equilibrium exists in an exchange economy with incomplete financial markets where redundant assets are traded and the asset trading of each agent is subject to endogenous portfolio constraints. The set of budget-feasible portfolios need not be bounded in the presence of redundant assets. To address this problem, we impose the positive semi-independence condition on individual portfolio constraints.
Keywords: Incomplete markets, Competitive equilibrium, Endogenous portfolio constraints, Redundant assets, Constrained arbitrage
JEL Classification: C62, D51
Suggested Citation: Suggested Citation