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The perturbation method applied to a robust optimization problem with constraint Math. Finan. Econ. (IF 1.6) Pub Date : 2024-03-18 Peng Luo, Alexander Schied, Xiaole Xue
The present paper studies a kind of robust optimization problems with constraint. The problem is formulated through Backward Stochastic Differential Equations (BSDEs) with quadratic generators. A necessary condition is established for the optimal solution using a terminal perturbation method and properties of Bounded Mean Oscillation (BMO) martingales. The necessary condition is further proved to be
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Robust non-zero-sum stochastic differential game of two insurers with common shock and CDS transaction Math. Finan. Econ. (IF 1.6) Pub Date : 2024-03-18 Man Li, Ying Huang, Ya Huang, Jieming Zhou
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Opinion dynamics in communities with major influencers and implicit social influence via mean-field approximation Math. Finan. Econ. (IF 1.6) Pub Date : 2024-03-18 Delia Coculescu, Médéric Motte, Huyên Pham
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Nash equilibria for relative investors with (non)linear price impact Math. Finan. Econ. (IF 1.6) Pub Date : 2024-02-28 Nicole Bäuerle, Tamara Göll
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Modelling the industrial production of electric and gas utilities through the $$CIR^3$$ model Math. Finan. Econ. (IF 1.6) Pub Date : 2024-02-10 Claudia Ceci, Michele Bufalo, Giuseppe Orlando
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Countercyclical unemployment benefits: a general equilibrium analysis of transition dynamics Math. Finan. Econ. (IF 1.6) Pub Date : 2024-02-01 Erhan Bayraktar, Indrajit Mitra, Jingjie Zhang
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Energy transition under scenario uncertainty: a mean-field game of stopping with common noise Math. Finan. Econ. (IF 1.6) Pub Date : 2024-01-24 Roxana Dumitrescu, Marcos Leutscher, Peter Tankov
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A mean field model for the development of renewable capacities Math. Finan. Econ. (IF 1.6) Pub Date : 2023-11-25 Clémence Alasseur, Matteo Basei, Charles Bertucci, Alekos Cecchin
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Dynamic debt issuance with jumps Math. Finan. Econ. (IF 1.6) Pub Date : 2023-11-22 Andreea Minca, Johannes Wissel
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Optimal insurance design under belief-dependent utility and ambiguity Math. Finan. Econ. (IF 1.6) Pub Date : 2023-11-20 Yulian Fan
We introduce a smooth decision model under ambiguity by the belief-dependent utility (BDU) proposed in Fan (Acta Math Appl Sin 37(4):682–696, 2021). Using the smooth decision model under BDU, we get the explicit optimal insurance policy for the insurer. Then the optimal insurance policy for the insured under premium constraint (the insurer is assumed to be risk neutral) is studied. The explicit results
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An elementary proof of the dual representation of Expected Shortfall Math. Finan. Econ. (IF 1.6) Pub Date : 2023-11-16 Martin Herdegen, Cosimo Munari
We provide an elementary proof of the dual representation of Expected Shortfall on the space of integrable random variables over a general probability space. Unlike the results in the extant literature, our proof only exploits basic properties of quantile functions and can thus be easily implemented in any graduate course on risk measures. As a byproduct, we obtain a new proof of the subadditivity
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On intermediate marginals in martingale optimal transportation Math. Finan. Econ. (IF 1.6) Pub Date : 2023-11-07 Julian Sester
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Moral hazard with excess returns Math. Finan. Econ. (IF 1.6) Pub Date : 2023-08-22 Matthias Blonski, Ulf von Lilienfeld-Toal
We consider a public firm characterized by a moral hazard problem. A distinguished player is a CEO or activist shareholder who (i) is unrestricted to trade shares and (ii) has discretion to increase the value of this firm by exerting costly effort. von Lilienfeld-Toal and Rünzi (J Finance 69(3):1013–1050, 2014) investigate and confirm the empirical relevance of both these properties. This article shows
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Robust utility maximization with nonlinear continuous semimartingales Math. Finan. Econ. (IF 1.6) Pub Date : 2023-08-17 David Criens, Lars Niemann
In this paper we study a robust utility maximization problem in continuous time under model uncertainty. The model uncertainty is governed by a continuous semimartingale with uncertain local characteristics. Here, the differential characteristics are prescribed by a set-valued function that depends on time and path. We show that the robust utility maximization problem is in duality with a conjugate
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Investment in two alternative projects with multiple switches and the exit option Math. Finan. Econ. (IF 1.6) Pub Date : 2023-08-03 Igor V. Kravchenko, Cláudia Nunes, Carlos Oliveira
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Optimization of regional economic industrial structure based on fuzzy k-means algorithm Math. Finan. Econ. (IF 1.6) Pub Date : 2023-07-28 Yin Wang
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Traditional and digital currencies in over-the-counter markets Math. Finan. Econ. (IF 1.6) Pub Date : 2023-07-22 Christoph Frei, Qianhong Huang
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Valuation of vulnerable options with stochastic corporate liabilities in a mixed fractional Brownian motion environment Math. Finan. Econ. (IF 1.6) Pub Date : 2023-07-10 Panhong Cheng, Zhihong Xu, Zexing Dai
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Optimal design of bank regulation under aggregate risk Math. Finan. Econ. (IF 1.6) Pub Date : 2023-07-06 Ahmad Peivandi, Mohammad Abbas Rezaei, Ajay Subramanian
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Hunting for superstars Math. Finan. Econ. (IF 1.6) Pub Date : 2023-06-08 Martin Meier, Leopold Sögner
The “superstar economy” is characterized by payoff functions that depend in a discontinuous way on the quality level of the corresponding products and services. Firm A might generate much higher returns than firm B, although A’s product is only marginally superior to B’s product. We look at an investor who considers to invest into start-ups that want to become active in one particular technological
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Consumption-investment decisions with endogenous reference point and drawdown constraint Math. Finan. Econ. (IF 1.6) Pub Date : 2023-05-23 Zongxia Liang, Xiaodong Luo, Fengyi Yuan
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Contagion risks and security investment in directed networks Math. Finan. Econ. (IF 1.6) Pub Date : 2023-05-17 Hamed Amini
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On the functional equivalence of two perfectly competitive economies with negative exponential utility and linear utility with a quadratic holding cost Math. Finan. Econ. (IF 1.6) Pub Date : 2023-05-12 Youcheng Lou
In this paper, we analyze the functional equivalence of two perfectly competitive economies with negative exponential and linear utility with a quadratic holding cost. The two economies are said to be functionally equivalent if there exists a one-to-one correspondence between the vector of holding costs and the vector of risk aversion coefficients such that the resulting two economies have the same
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A mean field model for the interactions between firms on the markets of their inputs Math. Finan. Econ. (IF 1.6) Pub Date : 2023-03-11 Yves Achdou, Guillaume Carlier, Quentin Petit, Daniela Tonon
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Non-concave portfolio optimization with average value-at-risk Math. Finan. Econ. (IF 1.6) Pub Date : 2023-03-04 Fangyuan Zhang
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An optimal portfolio and consumption problem with a benchmark and partial information Math. Finan. Econ. (IF 1.6) Pub Date : 2023-01-18 Mondher Bellalah, Detao Zhang, Panpan Zhang
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A pricing formula for delayed claims: appreciating the past to value the future Math. Finan. Econ. (IF 1.6) Pub Date : 2023-01-13 Enrico Biffis, Beniamin Goldys, Cecilia Prosdocimi, Margherita Zanella
We consider the valuation of contingent claims with delayed dynamics in a Samuelson complete market model. We find a pricing formula that can be decomposed into terms reflecting the current market values of the past and the future, showing how the valuation of prospective cashflows cannot abstract away from the contribution of the past. As a practical application, we provide an explicit expression
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Systemic cascades on inhomogeneous random financial networks Math. Finan. Econ. (IF 1.6) Pub Date : 2023-01-10 T. R. Hurd
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Optimal collective investment: an analysis of individual welfare Math. Finan. Econ. (IF 1.6) Pub Date : 2022-12-31 Nicole Branger, An Chen, Antje Mahayni, Thai Nguyen
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Mean field portfolio games with consumption Math. Finan. Econ. (IF 1.6) Pub Date : 2022-12-21 Guanxing Fu
We study mean field portfolio games with consumption. For general market parameters, we establish a one-to-one correspondence between Nash equilibria of the game and solutions to some FBSDE, which is proved to be equivalent to some BSDE. Our approach, which is general enough to cover power, exponential and log utilities, relies on martingale optimality principle in Cheridito and Hu (Stochast Dyn 11(02n03):283–299
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Dynamic Cournot-Nash equilibrium: the non-potential case Math. Finan. Econ. (IF 1.6) Pub Date : 2022-10-26 Julio Backhoff-Veraguas, Xin Zhang
We consider a large population dynamic game in discrete time where players are characterized by time-evolving types. It is a natural assumption that the players’ actions cannot anticipate future values of their types. Such games go under the name of dynamic Cournot-Nash equilibria, and were first studied by Acciaio et al. (SIAM J Control Optim 59:2273–2300, 2021), as a time/information dependent version
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Insurance guaranty premiums and exchange options Math. Finan. Econ. (IF 1.6) Pub Date : 2022-09-25 Hangsuck Lee, Seongjoo Song, Gaeun Lee
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A robust consumption model when the intensity of technological progress is ambiguous Math. Finan. Econ. (IF 1.6) Pub Date : 2022-08-17 Motoh Tsujimura, Hidekazu Yoshioka
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Pathwise superhedging under proportional transaction costs Math. Finan. Econ. (IF 1.6) Pub Date : 2022-08-03 Mun-Chol Kim, Song-Chol Ryom
We prove a pathwise superhedging duality for multi-dimensional options in model-free discrete time market with proportional efficient frictions. Firstly we prove a pathwise superhedging duality for European options under some no-arbitrage condition. As a consequence, we next obtain representations of pathwise superhedging prices of American options. Moreover, the main result gives dual representations
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A stochastic control approach to public debt management Math. Finan. Econ. (IF 1.6) Pub Date : 2022-08-02 M. Brachetta, C. Ceci
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Multivariate tempered stable additive subordination for financial models Math. Finan. Econ. (IF 1.6) Pub Date : 2022-07-13 Patrizia Semeraro
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Informational efficiency and welfare Math. Finan. Econ. (IF 1.6) Pub Date : 2022-05-26 Luca Bernardinelli, Paolo Guasoni, Eberhard Mayerhofer
In a continuous-time market with a safe rate and a risky asset that pays a dividend stream depending on a latent state of the economy, several agents make consumption and investment decisions based on public information–prices and dividends–and private signals. If each investor has constant absolute risk aversion, equilibrium prices do not reveal all the private signals, but lead to the same estimate
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Governmental incentives for green bonds investment Math. Finan. Econ. (IF 1.6) Pub Date : 2022-05-16 Bastien Baldacci, Dylan Possamaï
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Learning about latent dynamic trading demand $$^*$$ ∗ Math. Finan. Econ. (IF 1.6) Pub Date : 2022-04-23 Xiao Chen, Jin Hyuk Choi, Kasper Larsen, Duane J. Seppi
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The implications of tax loss carryforwards on investment policy Math. Finan. Econ. (IF 1.6) Pub Date : 2022-04-18 Hervé Roche
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Semi-analytical solution for consumption and investment problem under quadratic security market model with inflation risk Math. Finan. Econ. (IF 1.6) Pub Date : 2022-04-13 Bolorsuvd Batbold, Kentaro Kikuchi, Koji Kusuda
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Law-Invariant Functionals that Collapse to the Mean: Beyond Convexity Math. Finan. Econ. (IF 1.6) Pub Date : 2022-03-28 Felix-Benedikt Liebrich, Cosimo Munari
We establish general “collapse to the mean” principles that provide conditions under which a law-invariant functional reduces to an expectation. In the convex setting, we retrieve and sharpen known results from the literature. However, our results also apply beyond the convex setting. We illustrate this by providing a complete account of the “collapse to the mean” for quasiconvex functionals. In the
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Information and dynamic trading with the Gambler’s fallacy Math. Finan. Econ. (IF 1.6) Pub Date : 2022-03-25 Si Chen
A multi-period stock trading model is developed in which there are two types of traders—a “rational” type and a “gambler’s fallacy” type—both observing a public signal about the fundamental value in each period. The rational type holds correct beliefs on the signals, whereas the gambler’s fallacy type mistakenly believes that the sequence of the signals exhibits systematic reversals. We explore the
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Climate change adaptation under heterogeneous beliefs Math. Finan. Econ. (IF 1.6) Pub Date : 2022-03-23 Marcel Nutz, Florian Stebegg
We study strategic interactions between firms with heterogeneous beliefs about future climate impacts. To that end, we propose a Cournot-type equilibrium model where firms choose mitigation efforts and production quantities such as to maximize the expected profits under their subjective beliefs. It is shown that optimal mitigation efforts are increased by the presence of uncertainty and act as substitutes;
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Robust utility maximizing strategies under model uncertainty and their convergence Math. Finan. Econ. (IF 1.6) Pub Date : 2022-03-11 Jörn Sass, Dorothee Westphal
In this paper we investigate a utility maximization problem with drift uncertainty in a multivariate continuous-time Black–Scholes type financial market which may be incomplete. We impose a constraint on the admissible strategies that prevents a pure bond investment and we include uncertainty by means of ellipsoidal uncertainty sets for the drift. Our main results consist firstly in finding an explicit
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A dynamical model for real economy and finance Math. Finan. Econ. (IF 1.6) Pub Date : 2022-01-04 F. Grassetti, C. Mammana, E. Michetti
We have studied a discrete time dynamical model with four variables and delays, describing the interaction between a three-sector real economy and a financial market with four assets. Investors and financial intermediaries have heterogeneous beliefs. We show that complexity related to the evolution of state variables emerges and we investigate interdependence among economic fluctuations and assets
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Term structure modeling under volatility uncertainty Math. Finan. Econ. (IF 1.6) Pub Date : 2021-11-04 Julian Hölzermann
In this paper, we study term structure movements in the spirit of Heath et al. (Econometrica 60(1):77–105, 1992) under volatility uncertainty. We model the instantaneous forward rate as a diffusion process driven by a G-Brownian motion. The G-Brownian motion represents the uncertainty about the volatility. Within this framework, we derive a sufficient condition for the absence of arbitrage, known as
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Arbitrage-free Nelson–Siegel model for multiple yield curves Math. Finan. Econ. (IF 1.6) Pub Date : 2021-10-06 Riccardo Brignone, Christoph Gerhart, Eva Lütkebohmert
We propose an affine term structure model that allows for tenor-dependence of yield curves and thus for different risk categories in interbank rates, an important feature of post-crisis interest rate markets. The model has a Nelson–Siegel factor loading structure and thus economically well interpretable parameters. We show that the model is tractable in terms of estimation and provides good in-sample
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Optimal finite horizon contract with limited commitment Math. Finan. Econ. (IF 1.6) Pub Date : 2021-09-30 Junkee Jeon, Hyeng Keun Koo, Kyunghyun Park
We study a finite horizon optimal contracting problem with limited commitment. A risk-neutral principal enters into an insurance contract with a risk-averse agent who receives a stochastic income stream and cannot commit to keeping the contract. We consider a general concave utility function and a general process. We use the dual approach and the Lagrangian method to solve our optimization problem
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Price formation and optimal trading in intraday electricity markets Math. Finan. Econ. (IF 1.6) Pub Date : 2021-09-23 Féron, Olivier, Tankov, Peter, Tinsi, Laura
We develop a tractable equilibrium model for price formation in intraday electricity markets in the presence of intermittent renewable generation. Using stochastic control theory, we identify the optimal strategies of agents with market impact and exhibit the Nash equilibrium in closed form for a finite number of agents as well as in the asymptotic framework of mean field games. Our model reproduces
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Price impact equilibrium with transaction costs and TWAP trading Math. Finan. Econ. (IF 1.6) Pub Date : 2021-09-18 Noh, Eunjung, Weston, Kim
We prove the existence of an equilibrium in a model with transaction costs and price impact where two agents are incentivized to trade towards a target. The two types of frictions—price impact and transaction costs—lead the agents to two distinct changes in their optimal investment approach: price impact causes agents to continuously trade in smaller amounts, while transaction costs cause the agents
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Investment timing and capacity choice in duopolistic competition under a jump-diffusion model Math. Finan. Econ. (IF 1.6) Pub Date : 2021-08-21 Wu, Xiaoqin, Hu, Zhijun
This paper aims to apply the real options game theoretic to study the impact of sudden events on the optimal investment timing and capacity choice in a duopoly market. We model the market demand and investment cost as the geometric Brownian motions with jumps driven by the Poisson processes. A new computing method independent on specific distribution functions is proposed for the real option models
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Optimal portfolios in the presence of stress scenarios A worst-case approach Math. Finan. Econ. (IF 1.6) Pub Date : 2021-08-14 Korn, Ralf, Müller, Lukas
Insurance companies and banks regularly have to face stress tests performed by regulatory instances. To model their investment decision problems that includes stress scenarios, we propose the worst-case portfolio approach. Thus, the resulting optimal portfolios are already stress test prone by construction. A central issue of the worst-case portfolio approach is that neither the time nor the order
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Robust utility maximization under model uncertainty via a penalization approach Math. Finan. Econ. (IF 1.6) Pub Date : 2021-08-02 Guo, Ivan, Langrené, Nicolas, Loeper, Grégoire, Ning, Wei
This paper addresses the problem of utility maximization under uncertain parameters. In contrast with the classical approach, where the parameters of the model evolve freely within a given range, we constrain them via a penalty function. In addition, our paper dedicates in proposing various numerical algorithms to solve for the value function, including finite difference method, Generative Adversarial
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Optimal control model of an enterprise for single and inheriting periods of carbon emission reduction Math. Finan. Econ. (IF 1.6) Pub Date : 2021-07-31 Liang, Jin, Huang, Wenlin
In this paper, based on the framework of the single-period model, we establish an optimal control model for the inheriting period which allows inter-phase banking and borrowing of allowances under the cap-and-trade system. By considering the abatement control policy and the initial auction amount of allowances, we optimize the problem in two steps. The two models can then be expressed using the Ha
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Convergence rates of large-time sensitivities with the Hansen–Scheinkman decomposition Math. Finan. Econ. (IF 1.6) Pub Date : 2021-07-22 Hyungbin Park
This paper investigates the large-time asymptotic behavior of the sensitivities of cash flows. In quantitative finance, the price of a cash flow is expressed in terms of a pricing operator of a Markov diffusion process. We study the extent to which the pricing operator is affected by small changes of the underlying Markov diffusion. The main idea is a partial differential equation (PDE) representation
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Supermartingale deflators in the absence of a numéraire Math. Finan. Econ. (IF 1.6) Pub Date : 2021-05-18 Philipp Harms, Chong Liu, Ariel Neufeld
In this paper we study arbitrage theory of financial markets in the absence of a numéraire both in discrete and continuous time. In our main results, we provide a generalization of the classical equivalence between no unbounded profits with bounded risk and the existence of a supermartingale deflator. To obtain the desired results, we introduce a new approach based on disintegration of the underlying
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Risk management with expected shortfall Math. Finan. Econ. (IF 1.6) Pub Date : 2021-04-30 Pengyu Wei
This article studies optimal, dynamic portfolio and wealth/consumption policies of expected utility-maximizing investors who must also manage market-risk exposure which is measured by expected shortfall (ES). We find that ES managers can incur larger losses when losses occur, compared to benchmark managers. A general-equilibrium analysis reveals that the presence of ES managers increases the market
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Dynamically complete markets under Brownian motion Math. Finan. Econ. (IF 1.6) Pub Date : 2021-04-29 Theodoros M. Diasakos
This paper investigates how continuous-time trading renders complete a financial market in which the underlying risk process is a Brownian motion. A sufficient condition, that the instantaneous dispersion matrix of the relative dividends is non-degenerate, has been established in the literature for single-commodity, pure-exchange economies with many heterogenous agents where the securities’ dividends