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Overlapping Risk Adjusted Sets of Priors and the Existence of Efficient Allocations and Equilibria with Short-Selling

Le Van, Cuong; Dana, Rose-Anne (2010), Overlapping Risk Adjusted Sets of Priors and the Existence of Efficient Allocations and Equilibria with Short-Selling, Journal of Economic Theory, 145, 6, p. 2186-2202. http://dx.doi.org/10.1016/j.jet.2010.08.002

Type
Article accepté pour publication ou publié
Date
2010
Journal name
Journal of Economic Theory
Volume
145
Number
6
Publisher
Elsevier
Pages
2186-2202
Publication identifier
http://dx.doi.org/10.1016/j.jet.2010.08.002
Metadata
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Author(s)
Le Van, Cuong
Dana, Rose-Anne
Abstract (EN)
The theory of existence of equilibrium with short-selling is reconsidered under risk and ambiguity modelled by risk averse variational preferences. No-arbitrage conditions are given in terms of risk adjusted priors. A sufficient condition for existence of efficient allocations is the overlapping of the interiors of the risk adjusted sets of priors or the inexistence of mutually compatible trades, with non-negative expectation with respect to any risk adjusted prior. These conditions are necessary when agents are not risk neutral at extreme levels of wealths. It is shown that the more uncertainty averse or risk averse the agents, the more likely are efficient allocations and equilibria to exist.
Subjects / Keywords
Risk; Uncertainty; Variational Preferences; Equilibria with Short-Selling; Common Prior
JEL
G1 - General Financial Markets
D84 - Expectations; Speculations
D81 - Criteria for Decision-Making under Risk and Uncertainty
D50 - General
C62 - Existence and Stability Conditions of Equilibrium

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