Abstract
We describe a homotopy algorithm for the computation of equilibriain Stochastic Finance Economies. The algorithm solves a nonlinearsystem of equations consisting of the first-order conditions of theagents' utility maximization problems and market-clearing conditions.Moreover, we discuss the use of a straightforward homotopy approach for localcomparative statics. Using our methods we evaluate price, volatility,and welfare effects of options in incomplete asset markets.
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Kubler, F., Schmedders, K. Computing Equilibria in Stochastic Finance Economies. Computational Economics 15, 145–172 (2000). https://doi.org/10.1023/A:1008651229355
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DOI: https://doi.org/10.1023/A:1008651229355