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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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:	Date Event April 2018 Published 21 February 2018 Available 26 November 2017 Accepted
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 ID RIOXX Funder Name Funder ID 50101 Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung http://dx.doi.org/10.13039/501100001711
Open Access Version:	SSRN

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