2013/10/10 by Jin Hyuk Choi, Kasper Larsen, Choi, Jin Hyuk +1 · 1 citation
Economics, Econometrics and Finance · #FOS: Economics and business #Portfolio Management (q-fin.PM) #Pricing of Securities (q-fin.PR) #q-fin.PM #q-fin.PR
paper · pdf · doi:10.48550/arxiv.1310.2973
arxiv created 2014/09/29 · arxiv updated 2014/09/30
In the setting of exponential investors and uncertainty governed by Brownian motions we first prove the existence of an incomplete equilibrium for a general class of models. We then introduce a tractable class of exponential-quadratic models and prove that the corresponding incomplete equilibrium is characterized by a coupled set of Riccati equations. Finally, we prove that these exponential-quadratic models can be used to approximate the incomplete models we studied in the first part.