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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 . doi:10.1007/s00780-018-0354-x
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Official URL: https://doi.org/10.1007/s00780-018-0354-x
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 | ||||||
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| Subjects: | H Social Sciences > HB Economic Theory | ||||||
| Divisions: | Faculty of 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: | 21 February 2018 | ||||||
| Dates: |
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| Date of first compliant deposit: | 28 November 2017 | ||||||
| DOI: | 10.1007/s00780-018-0354-x | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||
| RIOXX Funder/Project Grant: |
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| Open Access Version: |
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