- Working Paper
We study a multi-period Arrow-Debreu equilibrium in a heterogeneous economy populated by agents trading in a complete market. Each agent is represented by an exponential utility function, where additionally no negative level of consumption is permitted. We derive an explicit formula for the optimal consumption policies involving a put option depending on the state price density. We exploit this formula to prove the existence of an equilibrium and then provide a characterization of all possible equilibria, under the assumption of positive endowments. Via particular examples, we demonstrate that uniqueness is not always guaranteed. Finally, we discover the presence of infinitely many equilibria when endowments are vanishing. Show more
Journal / seriesarXiv
Pages / Article No.
SubjectExponential utility; Incomplete markets; Equilibrium; Heterogeneous economie; Zero coupon bonds; Precautionary savings
Organisational unit03658 - Schweizer, Martin / Schweizer, Martin
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