Equilibrium of Financial Markets in Continuous Time. The Complete Markets Case

Part of the Springer Finance book series (FINANCE)


As we saw in the previous chapter, in discrete time the CAPM assumes very particular specifications for agents’ preferences. Originally, continuous-time equilibrium models were introduced to relax these assumptions. The first models considered had one agent, and the methods used to analyze them were essentially those of dynamic programming (see for example Merton [273], Cox et al [70], Breeden [43]). It is only in the last decade that the problem of the existence of equilibrium in continuous time with financial markets has been addressed, and that various properties of the CAPM have been proven. Note that there is no existence result in the incomplete markets case.


Continuous Time Asset Price Representative Agent Arbitrage Opportunity Equilibrium Allocation 
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© Springer-Verlag Berlin Heidelberg 2007

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