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Equilibrium Models With Singular Asset Prices
Author(s) -
Karatzas Ioannis,
Lehoczky John P.,
Shreve Steven E.
Publication year - 1991
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.1991.tb00013.x
Subject(s) - economics , asset (computer security) , consumption (sociology) , general equilibrium theory , financial market , mathematical economics , incomplete markets , econometrics , microeconomics , finance , computer science , social science , computer security , sociology
General equilibrium models in which economic agents have finite marginal utility from consumption at the origin lead to financial assets having continuous prices with singular components. In particular, there is no bona fide “interest rate” in such models, although asset prices can be determined by equilibrium considerations (and uniquely, up to the formation of mutual funds). the singularly continuous processes in question charge precisely the set of time points at which some agent “drops out” of the economy, or “comes back” into it, between intervals of zero consumption. Not surprisingly, these processes are governed by local time.