Analyzing Equilibrium in Incomplete Markets with Model Uncertainty*. (17th March 2017)

• Record Type: Journal Article
• Authors: Yoshikawa, Daisuke
• Other Names: Tian Weidong guestEditor.
• Is Part Of: International review of finance. Volume 17:Number 2(2017:Jun.)
• Page Start: 235
• Page End: 262
• Publication Date: 2017-03-17
• Subjects: Finance -- Periodicals; Financial institutions -- Periodicals; 332.673
• DOI: 10.1111/irfi.12119
• Languages: English
• ISSNs: 1369-412X

Abstract

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 maxmin 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 degree of risk aversion, initial capital, and agents' risk limits.