Incomplete financial markets and jumps in asset prices

Hervé Crès, Tobias Markeprand, Mich Tvede

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For incomplete financial markets, jumps in both prices and consumption can be unavoidable. We consider pure-exchange economies with infinite horizon, discrete time, uncertainty with a continuum of possible shocks at every date. The evolution of shocks follows a Markov process, and fundamentals depend continuously on shocks. It is shown that: (1) equilibria exist; (2) for effectively complete financial markets, asset prices depend continuously on shocks; and (3) for incomplete financial markets, there is an open set of economies U such that for every equilibrium of every economy in U, asset prices at every date depend discontinuously on the shock at that date.
Original languageEnglish
Pages (from-to)201-219
Number of pages19
JournalEconomic Theory
Issue number1
Early online date20 May 2015
Publication statusPublished - Jun 2016


  • Financial markets
  • General equilibrium
  • Jumps in asset prices

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