Finance and Stochastics

, Volume 5, Issue 4, pp 487–509 | Cite as

Existence and structure of stochastic equilibria with intertemporal substitution

  • Peter Bank
  • Frank Riedel


We prove existence of an Arrow–Debreu equilibrium when agents' preferences exhibit local substitution in the sense of Hindy, Huang, and Kreps (1992). Efficient allocations and supporting price functionals are identified and characterized. Under Hindy–Huang–Kreps preferences, equilibrium price processes are semimartingales for arbitrary endowments, but in general, they do not belong to the space suggested originally by Hindy and Huang (1992) due to an additional singular local time component.

Key words: General equilibrium, local substitution, non time additive utility 
JEL Classification: D51, D91 
AMS (1991) Subject Classification: 91B50, 91B70 


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Copyright information

© Springer-Verlag Berlin Heidelberg 2001

Authors and Affiliations

  • Peter Bank
    • 1
  • Frank Riedel
    • 2
  1. 1.Institut für Mathematik, Humboldt-Universität zu Berlin, Unter den Linden 6, D-10099 Berlin, Germany (e-mail:
  2. 2.Institut für Wirtschaftstheorie I, Humboldt-Universität zu Berlin, Spandauer Straße 1, Germany (e-mail:

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