SFB 303 Discussion Paper No. A - 403
Author: Laitenberger, Marta
Title: Existence of Financial Market Equilibria with Transaction
Abstract: The purpose of this paper is to give a general existence
proof of equilibria in a two period exchange economy with incomplete
markets and transaction costs. It is shown that the Arrow-Debreu
existence result from the traditional General Equilibrium theory
applies directly to the standard Incomplete Markets framework,
when tradings on financial markets incur real transaction costs.
The latter can be interpreted as a real taxation of returns from
financial transactions. Asset tradings being bounded by the limited
resources of the economy, it is possible to "compactify" the set of
individual portfolios, such that existence of financial market equilibria
follows from the "lemma on abstract economies" going back to Arrow and Debreu.
Besides, the modified no-arbitrage condition holding in the case of
transaction costs is derived.
Creation-Date: February 1993
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