THE CHEAPEST HEDGE:A PORTFOLIO DOMINANCE APPROACH

Investors often wish to insure themselves against the payoff of their portfolios falling below a certain value. One way of doing this is by purchasing an appropriate collection of traded securities. However, when the derivatives market is not complete, an investor who seeks portfolio insurance will also be interested in the cheapest hedge that is marketed. Such insurance will not exactly replicate the desired insured-payoff, but it is the cheapest that can be achieved using the market. Analytically, the problem of finding a cheapest insuring portfolio is a linear programming problem. The present paper provides an alternative portfolio dominance approach to solving the minimum-premium insurance portfolio problem. This affords remarkably rich and intuitive insights to determining and describing the minimum-premium insurance portfolios.

A theory of robust experiments for choice under uncertainty

Thought experiments are commonly used in the theory of behavior in the presence of risk and uncertainty to test the plausibility of proposed axiomatic postulates. The prototypical examples of the former are the Allais experiments and of the latter are the Ellsberg experiments. Although the lotteries from the former have objectively specified probabilities, the participants in both kinds of experiments may be susceptible to small deviations in their subjective beliefs. These may result from a variety of factors that are difficult to check in an experimental setting: including deviations in the understanding and trust regarding the experiment, its instructions and its method. Intuitively, an experiment is robust if it is tolerant to small deviations in subjective beliefs in models that are in an appropriate way close to the analyst's model. The contribution of this paper lies in the formalization of these ideas

The Limit Theorem on the Core of the Production Economy in Vector Lattices.

We consider production economies with unordered preferences and general consumption sets in a vector lattice commodity space. We show, by adapting the approach of Richard (1989), that Edgeworth equilibria can be supported as pseudo-equilibria by continuous pricesPRODUCTION

Production Equilibria in Locally proper Economies with Unbounded and Unordered Consumers

We prove a theorem on the existence of general equilibrium for a production economy with unordered preferences in a topological vector lattice commodity space. Our consumption sets need not have a lower bound and the set of feasible allocations need not be topologically bounded. Furthermore, we assume that the economy is locally proper as opposed to uniformly proper. In particular, preferences satisfy a locally uniform version of Yannelis and Zame's (1986) extreme desirability condition.ECONOMETRICS

Mas-Colell Price Equilibrium Existence Theorem the Case of Smooth Disposal.

This paper presents a surprising example. It shows that lattice theoretic properties in Mas-Colell's (1986) seminal work are relevant to the existence of equilibrium problem even when commodity space is finite dimensional. The paper provides an example of an economy with three commodities and two consumers. In this example, all of Mas-Colell's assumptions hold expect that the ordering of the commodity space is not a lattice. However, in our economy there is no Walrasian equilibrium and the second theorem of welfare economics fails. Ordered commodity spaces that are not vector lattice arise naturally when there are constraints on disposal technologies ; examples include waste discharge restrictions and pollution disposal.CONSUMERS ; TECHNOLOGY ; PRICES

Production equilibria

A first version of this paper has been presented at the 11th Conference on Real Analysis and Measure Theory in Ischia (Italy, 2004). This version was presented at the Debreu Memorial Conference in Berkeley (USA, 2005)International audienceThis paper studies production economies in a commodity space that is an ordered locally convex space. We establish a general theorem on the existence of equilibrium without requiring that the commodity space or its dual be a vector lattice. Such commodity spaces arise in models of portfolio trading where the absence of some option usually means the absence of a vector lattice structure. The conditions on preferences and production sets are at least as general as those imposed in the literature dealing with vector lattice commodity spaces. The main assumption on the order structure is that the Riesz-Kantorovich functionals satisfy a uniform properness condition that can be formulated in terms of a duality property that is readily checked. This condition is satisfied in a vector lattice commodity space but there are many examples of other commodity spaces that satisfy the condition, which are not vector lattices, have no order unit, and do not have either the decomposition property or its approximate versions

On uniqueness of equilibrium in the Kyle model

A longstanding unresolved question is whether the one-period Kyle model of an informed trader and a noisily informed market maker has an equilibrium that is different from the closed-form solution derived by Kyle (Econometrica 53:1315–1335, 1985). This note advances what is known about this open problem