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Stability of Radner Equilibria with respect to small frictions

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Herdegen, Martin and Muhle-Karbe, Johannes (2018) Stability of Radner Equilibria with respect to small frictions. Finance and Stochastics, 22 . pp. 443-502. doi:10.1007/s00780-018-0354-x ISSN 0949-2984.

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Official URL: https://doi.org/10.1007/s00780-018-0354-x

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Abstract

We study risk-sharing equilibria with trading subject to small proportional transaction costs. We show that the frictionless equilibrium prices also form an "asymptotic equilibrium" in the small-cost limit. To wit, there exist asymptotically optimal policies for all agents and a split of the trading cost according to their risk aversions for which the frictionless equilibrium prices still clear the market. Starting from a frictionless equilibrium, this allows to study the interplay of volatility, liquidity, and trading volume.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Science, Engineering and Medicine > Science > Statistics
Library of Congress Subject Headings (LCSH): Computable general equilibrium models, Transaction costs -- Taxation
Journal or Publication Title: Finance and Stochastics
Publisher: Springer
ISSN: 0949-2984
Official Date: April 2018
Dates:
DateEvent
April 2018Published
21 February 2018Available
26 November 2017Accepted
Volume: 22
Page Range: pp. 443-502
DOI: 10.1007/s00780-018-0354-x
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
Date of first compliant deposit: 28 November 2017
Date of first compliant Open Access: 21 February 2019
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
50101Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschunghttp://dx.doi.org/10.13039/501100001711
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