scholarly journals New conditions for the existence of equilibrium prices

2018 ◽  
Vol 28 (1) ◽  
pp. 59-77 ◽  
Author(s):  
Aram Arutyunov ◽  
Natalia Pavlova ◽  
Aleksandr Shananin
Keyword(s):  
Transaction Costs ◽  
Utility Function ◽  
Demand Function ◽  
Sufficient Conditions ◽  
Equilibrium Price ◽  
Supply Function ◽  
Demand Model ◽  
Price Vector ◽  
Existence Of Equilibrium ◽  
Equilibrium Prices

We study the existence of equilibrium price vector in a supply-demand model taking into account the transaction costs associated with the sale of products. In this model, the demand function is the solution to the problem of maximizing the utility function under budget constraints. The supply function is the solution to the problem of maximizing the profit (with given transaction losses) on the technology set. We establish sufficient conditions for the existence of the equilibrium price vector, which are consequences of some theorems in the theory of covering mappings.

scholarly journals Hicksian Welfare Measures and the Normative Endowment Effect

2010 ◽  
Vol 2 (4) ◽  
pp. 171-194 ◽  
Author(s):  
Thomas A Weber
Keyword(s):  
Utility Function ◽  
Sufficient Conditions ◽  
Endowment Effect ◽  
Indirect Utility ◽  
Compensating Variation ◽  
Equivalent Variation ◽  
Indirect Utility Function ◽  
Welfare Measures ◽  
Empirical Implications ◽  
Hicksian Welfare

We show that the Hicksian welfare measures of compensating variation and equivalent variation coincide if one of them is evaluated at a compensated income. The measures are nondecreasing in income if the varied attribute and income are complementary, and indirect utility is concave in income. Income monotonicity implies the normative endowment effect, where the equivalent variation exceeds the compensating variation. We provide sufficient conditions for the normative endowment effect and discuss empirical implications. In the global absence of a strict (anti-) endowment effect, both Hicksian welfare measures must be independent of income and the indirect utility function additively separable in income. (JEL D11, D63)

scholarly journals Value and Prices in a Reinsurance Market

1979 ◽  
Vol 10 (3) ◽  
pp. 263-273 ◽  
Author(s):  
Flavio Pressacco
Keyword(s):  
Utility Function ◽  
Intrinsic Value ◽  
Market Equilibrium ◽  
Economic Problem ◽  
Point Of View ◽  
Equilibrium Prices ◽  
State Of Nature ◽  
Classical Economic ◽  
Reinsurance Market

This paper concerns the Borch model of a reinsurance market seen as a model of an economy under uncertainty.In a market of this type the goods traded are unit coverings contingent to a particular state of nature (n-tuple of claims).Our idea is to regard the probability of a state of nature as a sort of intrinsic value of the related contingent covering. From this point of view we examine the role of the reinsurance market in modifying values in market equilibrium prices and other questions, related to this classical economic problem, in the particular case of a quadratic utility function for all companies.

scholarly journals An intra-household approach to the welfare costs of inflation

2006 ◽  
Vol 36 (3) ◽  
pp. 593-609 ◽  
Author(s):  
Rubens Penha Cysne
Keyword(s):  
Money Demand ◽  
Demand Function ◽  
Equilibrium Measure ◽  
Order Approximation ◽  
Sufficient Conditions ◽  
Money Demand Function ◽  
Welfare Costs ◽  
First Order ◽  
The Many ◽  
First Order Approximation

The literature on the welfare costs of inflation universally assumes that the many-person household can be treated as a single economic agent. This paper explores what the heterogeneity of the agents in a household might imply for such welfare analyses. First, we show that allowing for a one-person or for a many-person transacting technology impacts the money demand function and, therefore, the welfare costs of inflation. Second, more importantly, we derive sufficient conditions under which welfare assessments which depart directly from the knowledge of the money demand function (as in Lucas, 2000) are robust (invariant) under the number of persons considered in the household. Third, we show that Bailey’s (1956) partial-equilibrium measure of the welfare costs of inflation can be obtained as a first-order approximation of the general-equilibrium welfare measure derived in this paper using a many-person transacting technology.

UNDERSTANDING BID-ASK SPREADS OF DERIVATIVES UNDER UNCERTAIN VOLATILITY AND TRANSACTION COSTS

2001 ◽  
Vol 04 (03) ◽  
pp. 467-489 ◽  
Author(s):  
THIERRY ANÉ ◽  
VINCENT LACOSTE
Keyword(s):  
Transaction Costs ◽  
Portfolio Diversification ◽  
Uncertain Parameters ◽  
Price Determination ◽  
Options Markets ◽  
Hedging Strategy ◽  
Underlying Asset ◽  
Equilibrium Prices ◽  
Bid Ask Spreads ◽  
Random Nature

The classical option valuation models assume that the option payoff can be replicated by continuously adjusting a portfolio consisting of the underlying asset and a risk-free bond. This strategy implies a constant volatility for the underlying asset and perfect markets. However, the existence of non-zero transaction costs, the consequence of trading only at discrete points in time and the random nature of volatility prevent any portfolio from being perfectly hedged continuously and hence suppress any hope of completely eliminating all risks associated with derivatives. Building upon the uncertain parameters framework we present a model for pricing and hedging derivatives where the volatility is simply assumed to lie between two bounds and in the presence of transaction costs. It is shown that the non-arbitrageable prices for the derivatives, which arise in this framework, can be derived by a non-linear PDE related to the convexity of the derivatives. We use Monte Carlo simulations to investigate the error in the hedging strategy. We show that the standard arbitrage is exposed to such large risks and transaction costs that it can only establish very wide bounds on equilibrium prices, obviously in contradiction with the very tight bid-ask spreads of derivatives observed on the market. We explain how the market spreads can be compatible with our model through portfolio diversification. This has important implications for price determination in options markets as well as for testing of valuation models.

Are capital inflows in the CR inflationary?

1996 ◽  
Vol 5 (1) ◽  
Author(s):  
Tomáš Dvořák
Keyword(s):  
Czech Republic ◽  
Money Supply ◽  
Money Demand ◽  
Empirical Investigation ◽  
Demand Function ◽  
Supply And Demand ◽  
Capital Inflows ◽  
Supply Function ◽  
The Czech Republic ◽  
Net Foreign Assets

It is evident that the volume of capital inflows in the Czech Republic has had seriously monetary consequences. As shown in the section 2 net foreign assets accounted for most of the growth in the money supply in the Czech Republic during 1993 and 1994. Inflationary effects of capital inflows depend on whether capital inflows are driven by the money demand or by the money supply. The inflows driven by a rightward shift in the money demand function are not likely to result in inflation, while a shift in the money, supply function, caused perhaps by institutional change and greater availability of foreign funds, is likely to put pressure on prices. Empirical investigation of the supply and demand effects attempted to confirm the existence of the supply of money supply function in the Czech Republic. The application of appropriate econometric analysis in the turbulent period of 1992 - 1994 was somewhat problematic.

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