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Financial Innovation and Price Volatility

Abstract : In a three-period finite competitive exchange economy with incomplete financial markets and retrading, we show the generic existence of financial innovation which decreases equilibrium price volatility (as well as innovation which increases it). 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.
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Contributor : Antoine Haldemann Connect in order to contact the contributor
Submitted on : Sunday, June 12, 2011 - 6:39:17 PM
Last modification on : Thursday, January 11, 2018 - 6:19:32 AM


  • HAL Id : hal-00599992, version 1



Alessandro Citanna. Financial Innovation and Price Volatility. 1999. ⟨hal-00599992⟩



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