Taylor approximation of incomplete Radner equilibrium models
classification
💱 q-fin.PM
q-fin.PR
keywords
modelsincompleteequilibriumproveclassexponential-quadraticfirstapproximate
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In the setting of exponential investors and uncertainty governed by Brownian motions we first prove the existence of an incomplete equilibrium for a general class of models. We then introduce a tractable class of exponential-quadratic models and prove that the corresponding incomplete equilibrium is characterized by a coupled set of Riccati equations. Finally, we prove that these exponential-quadratic models can be used to approximate the incomplete models we studied in the first part.
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