HAL will be down for maintenance from Friday, June 10 at 4pm through Monday, June 13 at 9am. More information
Skip to Main content Skip to Navigation

Controlling Price Volatility Through Financial Innovation

Abstract : In a three-period finite competitive exchange economy with incomplete financial markets and retrading, we study the possibility of controlling asset price volatility through financial innovation. We first give sufficient conditions on preferences and endowments implying that whatever is the innovation which completes markets, it also reduces volatility, typically in this class of economies. We also numerically examine some interesting examples. Then we show the generic existence, even outside this class, of financial innovation which decreases equilibrium price volatility. The existence is obtained under conditions of sufficient market incompleteness. The financial innovation may consist of an asset which is only traded at time zero, or retraded, and with payoffs only at the terminal date. The existence is shown to be robust in the asset payoff space.
Complete list of metadata

Contributor : Antoine Haldemann Connect in order to contact the contributor
Submitted on : Thursday, May 19, 2011 - 4:51:19 PM
Last modification on : Thursday, January 11, 2018 - 6:19:32 AM


  • HAL Id : hal-00594367, version 1



Alessandro Citanna, Karl Schmedders. Controlling Price Volatility Through Financial Innovation. 2002. ⟨hal-00594367⟩



Record views