No-arbitrage equilibria with differential information: an enlarged existence theorem

Lionel De Boisdeffre ()
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Lionel De Boisdeffre: CERMSEM

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

Abstract: On the example of a pure-exchange financial economy with two periods, incomplete nominal-asset markets and differential information of the adverse selection's type, Cornet-De Boisdeffre (2002) introduced refined concepts of no-arbitrage prices and equilibria, which extended to the asymmetric information setting the classical concepts of the symmetric information literature. We now extend to the asymmetric information setting a standard existence property of symmetric information models. Namely, we prove that no-arbitrage prices fully characterize equilibrium security prices, in the sense that each equilibrium security price is arbitrage-free and each no-arbitrage price can be embedded as a no-arbitrage equilibrium security price. This result holds under the same standard conditions whether agents have symmetric or asymmetric information

Keywords: General equilibrium; asymmetric information; arbitrage; inference; existence of equilibrium (search for similar items in EconPapers)
JEL-codes: D52 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004-10
New Economics Papers: this item is included in nep-fin and nep-his
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