Incomplete Financial Markets and Jumps in Asset Prices
Research output: Working paper › Research
Documents
- DP 09-12
Final published version, 181 KB, PDF document
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 language | English |
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Publisher | Department of Economics, University of Copenhagen |
Number of pages | 15 |
Publication status | Published - 2009 |
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ID: 13458285