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Publication

Complete and incomplete financial markets in multi-good economies

Wednesday, 24 February 2016 - Paul Ehling

Abstract

We investigate conditions for endogenous incompleteness and completeness in continuoustime financial markets driven by di usion processes with multiple consumption goods and heterogeneous agents. We show that for a class of utility functions the financial market is endogenously incomplete. A su cient condition for market completeness is that the dividend di usion matrix in units of the numeraire good is invertible. Further, financial market completeness can depend on the choice of the numeraire good since changing the numeraire good implies a change of the risk-free asset and the asset structure

Ehling, Paul and Christian Heyerdahl-Larsen. 2015. “Complete and incomplete financial markets in multi-good economies.” Journal of Economic Theory, 160:438-462

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