When financial investors’ portfolio holdings are unconstrained, financial economies are assumed, w.l.o.g., to have no redundant assets. Indeed, eliminating redundant assets allows to replace the initial financial structure by an equivalent one, i.e., one that has the same consumption equilibria. Moreover, at the end of the process, absence of redundant assets guarantees that the set of admissible portfolio allocations is bounded, a fundamental property for the existence of equilibria. In the presence of institutional (exogenous) portfolio constraints, eliminating redundant assets is not innocuous anymore since bounded arbitrage may persist at equilibrium, the law of one price does not hold, and some zero-income portfolios may not be free. The goal of the paper is to replace the elimination of redundant assets by the elimination of useless portfolios, a process that eliminates in particular Werner useless portfolios, but needs to go beyond to obtain the boundedness of the set of admissible portfolio allocations at the end of the purification process. Moreover, the elimination process is carried out without affecting the set of consumption equilibria, hence replacing at each step the financial structure by an equivalent one.
When financial investors’ portfolio holdings are unconstrained, financial economies are assumed, w.l.o.g., to have no redundant assets. Indeed, eliminating redundant assets allows to replace the initial financial structure by an equivalent one, i.e., one that has the same consumption equilibria. Moreover, at the end of the process, absence of redundant assets guarantees that the set of admissible portfolio allocations is bounded, a fundamental property for the existence of equilibria. In the presence of institutional (exogenous) portfolio constraints, eliminating redundant assets is not innocuous anymore since bounded arbitrage may persist at equilibrium, the law of one price does not hold, and some zero-income portfolios may not be free. The goal of the paper is to replace the elimination of redundant assets by the elimination of useless portfolios, a process that eliminates in particular Werner useless portfolios, but needs to go beyond to obtain the boundedness of the set of admissible portfolio allocations at the end of the purification process. Moreover, the elimination process is carried out without affecting the set of consumption equilibria, hence replacing at each step the financial structure by an equivalent one.
Titre
en
Eliminating useless portfolios in financial economies with constraints
Auteur(s)
Zaier Aouani1, 2
, Bernard Cornet3, 4
1
College of Business and Economics, Qatar University
( 170669 )
- Qatar
Qatar University ( 257464 )
2
Department of Economics [Astana]
( 1041580 )
- Department of Economics,
Nazarbayev University,
Astana,
Kazakhstan
- Kazakhstan
Nazarbayev University [Kazakhstan] ( 355543 )
3
CES -
Centre d'économie de la Sorbonne
( 15080 )
- Maison des Sciences Économiques - 106-112 Boulevard de l'Hôpital - 75647 Paris Cedex 13
- France
Université Paris 1 Panthéon-Sorbonne UMR8174 ( 7550 )
;
Centre National de la Recherche Scientifique UMR8174 ( 441569 )
4
PSE -
Paris School of Economics
( 301309 )
- 48 boulevard Jourdan 75014 Paris
- France
Université Paris 1 Panthéon-Sorbonne ( 7550 )
;
École normale supérieure - Paris ( 59704 )
;
Université Paris Sciences et Lettres ( 564132 )
;
École des hautes études en sciences sociales ( 99539 )
;
École des Ponts ParisTech ( 301545 )
;
Centre National de la Recherche Scientifique ( 441569 )
;
Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement ( 577435 )
Langue du document
Anglais
Nom de la revue
Journal of Mathematical Economics
(ISSN : 0304-4068)
Publié par Elsevier
Revue non référencée dans Sherpa-Romeo
Vulgarisation
Non
Comité de lecture
Oui
Audience
Internationale
Date de publication
2017-01
Date de publication électronique
2016-10-21
Volume
63
Page/Identifiant
159–190
Domaine(s)
Sciences de l'Homme et Société/Economies et finances
C - Mathematical and Quantitative Methods/C.C6 - Mathematical Methods • Programming Models • Mathematical and Simulation Modeling/C.C6.C62 - Existence and Stability Conditions of Equilibrium
D - Microeconomics/D.D5 - General Equilibrium and Disequilibrium/D.D5.D52 - Incomplete Markets
D - Microeconomics/D.D5 - General Equilibrium and Disequilibrium/D.D5.D53 - Financial Markets