Ebook: General Equilibrium Foundations of Finance: Structure of Incomplete Markets Models

The purpose of this book is to give a sound economic foundation of finance. Finance is a coherent branch of applied economics that is designed to understand financial markets in order to give advice for practical financial decisions. This book argues that for a sound economic foundation of finance the famous general equilibrium model which in its modern form emphasizes the incompleteness of financial markets is well suited. The aim of the book is to demonstrate that financial markets can be meaningfully embedded into a more general system of markets including, for example, commodity markets. The interaction of these markets can be described via the well known notion of a competitive equilibrium. We argue that for a sound foundation this competitive equilibrium should be unique. In a first step we demonstrate that this essential goal cannot of be achieved based only on the rationality principle, i. e. on the assumption utility maximization of some utility function subject to the budget constraint. In particular we show that this important lack of structure is disturbing as well for the case of mean-variance utility functions which are the basis of the Capital Asset Pricing Model, one of the cornerstones of finance. The final goal of our book is to give reasonable restrictions on the agents' utility functions which lead to a well determined financial markets model.

---

The purpose of General Equilibrium Foundations of Finance is to give a sound economic foundation of finance based on the general equilibrium model with incomplete markets which embodies the famous CAPM as an important special case. This goal is achieved by giving reasonable restrictions on the agents' characteristics that lead to a well determined financial markets model having a unique competitive equilibrium. The innovation of this book is to transfer and to extend the theoretical results on the structure of competitive equilibria into the modern context of incomplete financial markets. General Equilibrium Foundations of Finance should be easily accessible by advanced Ph.D. students as well as by theorists of any subfield of mathematical economics. It should be interesting both for theorists who are looking for possible applications of rigorous theorizing as well as for practitioners who seek for a theoretical foundation of fruitful applications of financial markets' models.

---

The purpose of General Equilibrium Foundations of Finance is to give a sound economic foundation of finance based on the general equilibrium model with incomplete markets which embodies the famous CAPM as an important special case. This goal is achieved by giving reasonable restrictions on the agents' characteristics that lead to a well determined financial markets model having a unique competitive equilibrium. The innovation of this book is to transfer and to extend the theoretical results on the structure of competitive equilibria into the modern context of incomplete financial markets. General Equilibrium Foundations of Finance should be easily accessible by advanced Ph.D. students as well as by theorists of any subfield of mathematical economics. It should be interesting both for theorists who are looking for possible applications of rigorous theorizing as well as for practitioners who seek for a theoretical foundation of fruitful applications of financial markets' models.
Content:
Front Matter....Pages i-xxvii
Front Matter....Pages 1-1
The Model and Some Fundamentals....Pages 3-37
Existence of Equilibria....Pages 39-59
Structure of GEI-Excess Demand....Pages 61-69
The Index-Theorem....Pages 71-78
Uniqueness of Competitive Equilibria in the Arrow-Debreu Model....Pages 79-100
Uniqueness of Competitive Equilibria in the Finance GEI-Model....Pages 101-211
Front Matter....Pages 213-213
The Model and Some Fundamentals....Pages 215-233
Existence of Equilibria....Pages 235-243
Market Demand Functions in the CAPM....Pages 245-257
Uniqueness of Equilibria in the CAPM....Pages 259-270
Back Matter....Pages 271-299

---

The purpose of General Equilibrium Foundations of Finance is to give a sound economic foundation of finance based on the general equilibrium model with incomplete markets which embodies the famous CAPM as an important special case. This goal is achieved by giving reasonable restrictions on the agents' characteristics that lead to a well determined financial markets model having a unique competitive equilibrium. The innovation of this book is to transfer and to extend the theoretical results on the structure of competitive equilibria into the modern context of incomplete financial markets. General Equilibrium Foundations of Finance should be easily accessible by advanced Ph.D. students as well as by theorists of any subfield of mathematical economics. It should be interesting both for theorists who are looking for possible applications of rigorous theorizing as well as for practitioners who seek for a theoretical foundation of fruitful applications of financial markets' models.
Content:
Front Matter....Pages i-xxvii
Front Matter....Pages 1-1
The Model and Some Fundamentals....Pages 3-37
Existence of Equilibria....Pages 39-59
Structure of GEI-Excess Demand....Pages 61-69
The Index-Theorem....Pages 71-78
Uniqueness of Competitive Equilibria in the Arrow-Debreu Model....Pages 79-100
Uniqueness of Competitive Equilibria in the Finance GEI-Model....Pages 101-211
Front Matter....Pages 213-213
The Model and Some Fundamentals....Pages 215-233
Existence of Equilibria....Pages 235-243
Market Demand Functions in the CAPM....Pages 245-257
Uniqueness of Equilibria in the CAPM....Pages 259-270
Back Matter....Pages 271-299
....