Pricing in (In)Complete Markets

2004 ◽  
Author(s):  
Angelika Esser
Keyword(s):  
Complete Markets

scholarly journals Government Debt Management: The Long and the Short of It

2018 ◽  
Vol 86 (6) ◽  
pp. 2554-2604 ◽  
Author(s):  
Elisa Faraglia ◽  
Albert Marcet ◽  
Rigas Oikonomou ◽  
Andrew Scott
Keyword(s):  
Transaction Costs ◽  
Incomplete Markets ◽  
Dominant Role ◽  
Global Solutions ◽  
Debt Management ◽  
Computational Method ◽  
Complete Markets ◽  
Market Models ◽  
Multiple Assets ◽  
Over Time

Abstract Standard optimal Debt Management (DM) models prescribe a dominant role for long bonds and advocate against issuing short bonds. They require very large positions in order to complete markets and assume each period that governments repurchase all outstanding bonds and reissue (r/r) new ones. These features of DM are inconsistent with U.S. data. We introduce incomplete markets via small transaction costs which serves to make optimal DM more closely resemble the data : r/r are negligible, short bond issuance substantial and persistent and short and long bonds positively co-vary. Intuitively, long bonds help smooth taxes over states and short bonds over time. Solving incomplete market models with multiple assets is challenging so a further contribution of this article is introducing a novel computational method to find global solutions.

Asset Price Bubbles in Complete Markets

2007 ◽  
pp. 97-121 ◽  
Author(s):  
Robert A. Jarrow ◽  
Philip Protter ◽  
Kazuhiro Shimbo
Keyword(s):  
Asset Price ◽  
Complete Markets ◽  
Asset Price Bubbles ◽  
Price Bubbles

scholarly journals Consumption insurance with advance information

2020 ◽  
Vol 11 (2) ◽  
pp. 671-711
Author(s):  
Christian A. Stoltenberg ◽  
Swapnil Singh
Keyword(s):  
Limited Commitment ◽  
Insurance Markets ◽  
Income Shocks ◽  
Complete Markets ◽  
Consumption Insurance ◽  
Current Consumption ◽  
The Us ◽  
Advance Information ◽  
Future Income ◽  
Saving Decisions

This paper investigates whether assuming that households possess advance information on their income shocks helps to overcome the difficulty of standard models to understand consumption insurance in the US. As our main result, we find that the quantitative relevance of advance information crucially depends on the structure of insurance markets. For a realistic amount of advance information, a complete markets model with endogenous solvency constraints due to limited commitment explains several key consumption insurance measures better than existing models without advance information. In contrast, when advance information is integrated into a standard incomplete markets model, it affects household consumption‐saving decisions too little to bridge the gap between the model and the data and can induce counterfactual correlations between current consumption growth and future income growth.

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