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Financial Innovation and Expectations. Endogenous Incompleteness and Real Indeterminacy

Abstract : This paper analyzes an incomplete financial markets model with pricetaking utility-maximizing financial innovators and no-short sales restrictions. It is shown that, given the indeterminacy of the no arbitrage price conjecture of innovators, financial markets can remain incomplete in equilibrium. As a consequence, real indeterminacy of degree at least equal to int (S/2)(S-(S/2)) results, where S is the number of spots in the future. The dimension of innovators' beliefs giving rise to I newly introduced financial assets is I(S-I), with an equal degree of real indeterminacy.
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https://hal-hec.archives-ouvertes.fr/hal-00607602
Contributor : Antoine Haldemann Connect in order to contact the contributor
Submitted on : Saturday, July 9, 2011 - 9:50:09 PM
Last modification on : Saturday, June 25, 2022 - 10:52:28 AM

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  • HAL Id : hal-00607602, version 1

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HEC | CNRS | LARA

Citation

Alessandro Citanna, Antonio Villanacci. Financial Innovation and Expectations. Endogenous Incompleteness and Real Indeterminacy. 1995. ⟨hal-00607602⟩

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