Incomplete Financial Markets and Jumps in Asset Prices

A dynamic pure-exchange general equilibrium model with uncertainty is studied. Fundamentals are supposed to depend continuously on states of nature. It is shown that: 1. if financial markets are complete, then asset prices vary continuously with states of nature, and; 2. if financial markets are incomplete, jumps in asset prices may be unavoidable. Consequently incomplete financial markets may increase volatility in asset prices significantly.

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Year of publication:	2009-06
Authors:	Crès, Hervé ; Markeprand, Tobias ; Tvede, Mich
Institutions:	Økonomisk Institut, Københavns Universitet
Subject:	general equilibrium \| financial markets \| jumps in asset prices

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Extent:	application/pdf
Series:	Discussion Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 09-12 15 pages
Classification:	D52 - Incomplete Markets ; D53 - Financial Markets ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005014887