Incomplete Financial Markets and Jumps in Asset Prices

Research output: Working paperResearch

Documents

  • DP 09-12

    Final published version, 181 KB, PDF document

  • Hervé Crès
  • Tobias Ejnar Markeprand
  • Mich Tvede
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.
Original languageEnglish
PublisherDepartment of Economics, University of Copenhagen
Number of pages15
Publication statusPublished - 2009

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