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Non-Implementability of Arrow-Debreu Equilibria by Continuous Trading under Knightian Uncertainty

Author

Listed:
  • Riedel, Frank

    (Center for Mathematical Economics, Bielefeld University)

  • Beißner, Patrick

    (Center for Mathematical Economics, Bielefeld University)

Abstract
Under risk, Arrow-Debreu equilibria can be implemented as Radner equilibria by continuous trading of few long-lived securities. We show that this result generically fails if there is Knightian uncertainty in the volatility. Implementation is only possible if all discounted net trades of the equilibrium allocation are mean ambiguity-free.

Suggested Citation

  • Riedel, Frank & Beißner, Patrick, 2016. "Non-Implementability of Arrow-Debreu Equilibria by Continuous Trading under Knightian Uncertainty," Center for Mathematical Economics Working Papers 527, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:527
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    File URL: https://pub.uni-bielefeld.de/download/2901673/2902682
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Patrick Beissner & Frank Riedel, 2019. "Equilibria Under Knightian Price Uncertainty," Econometrica, Econometric Society, vol. 87(1), pages 37-64, January.
    2. Qian Lin, 2015. "Dynamic indifference pricing via the G-expectation," Papers 1503.08628, arXiv.org, revised Sep 2020.
    3. Patrick Beissner, 2019. "Coherent-Price Systems and Uncertainty-Neutral Valuation," Risks, MDPI, vol. 7(3), pages 1-18, September.

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    More about this item

    Keywords

    Knightian Uncertainty; Ambiguity; general Equilibrium; Asset Pricing; Radner Equilibrium;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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