Non-Implementability of Arrow-Debreu Equilibria by Continuous Trading under Knightian Uncertainty
Mathematical Finance
2014-09-25 v1 Economics
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.
Keywords
Cite
@article{arxiv.1409.6940,
title = {Non-Implementability of Arrow-Debreu Equilibria by Continuous Trading under Knightian Uncertainty},
author = {Patrick Beissner and Frank Riedel},
journal= {arXiv preprint arXiv:1409.6940},
year = {2014}
}