Incomplete Financial Markets and Jumps in Asset Prices

A dynamic pure-exchange general equilibrium model with uncertainty is studied. Fundamentals are supposed to depend continuously on states of nature. It is shown that: 1. if financial markets are complete, then asset prices vary continuously with states of nature, and; 2. if financial markets are incomplete, jumps in asset prices may be unavoidable. Consequently incomplete financial markets may increase volatility in asset prices significantly.general equilibrium; financial markets; jumps in asset prices

Incomplete financial markets and jumps in asset prices

For incomplete financial markets, jumps in both prices and consumption can be unavoidable. We consider pure-exchange economies with infinite horizon, discrete time, uncertainty with a continuum of possible shocks at every date. The evolution of shocks follows a Markov process, and fundamentals depend continuously on shocks. It is shown that: (1) equilibria exist; (2) for effectively complete financial markets, asset prices depend continuously on shocks; and (3) for incomplete financial markets, there is an open set of economies U such that for every equilibrium of every economy in U, asset prices at every date depend discontinuously on the shock at that date

SBAM: An algorithm for pair matching

This paper introduces a new algorithm for pair matching. The method is called SBAM (Sparse Biproportionate Adjustment Matching) and can be characterized as either cross-entropy minimizing or matrix balancing. This implies that we use information efficiently according to the historic observations on pair matching. The advantage of the method is its efficient use of information and its reduced computational requirements. We compare the resulting matching pattern with the harmonic and ChooSiow matching functions and find that in important cases the SBAM and ChooSiow method change the couples pattern n in the same way. We also compare the computational requirements of the SBAM with alternative methods used in microsimulation models. The method is demonstrated in the context of a new Danish microsimulation model that has been used for forecasting the housing demand

Befolknings- og indkomstudviklingen i danske kommuner

Gennem de seneste 25 år har en stigende andel af ældre, et øget uddannelsesniveau og en lang række af arbejdsmarkedsreformer været med til at præge udviklingen i befolkningens velstand. Grundet kommunale forskelle i befolkningens sammensætning har indkomstgennemslaget af ændringerne dog varieret betydeligt mellem land og by. Dette har betydet, at indkomstspredningen mellem landets kommuner er øget gennem den historiske periode. En fremskrivning med DREAMs mikrosimulationsmodel SMILE tilsiger, at vi også i de kommende 25 år kan forvente en aldrende befolkning og et stigende uddannelsesniveau, der henholdsvis dæmper og styrker indkomstudviklingen. I modsætning til den historiske periode imødeses relativt større velstandsstigninger i landkommunerne end omkring de større byer. Dette skal tilskrives en forholdsmæssig større effekt af udskiftningen af ældre med yngre bedre uddannede generationer, samt at aldringseffekten delvist modgås af de lovbestemte løft i tilbagetrækningsalderen og af stigende udbetalinger fra private og arbejdsgiveradministrerede pensionsordninger. Som følge heraf forventes en mindre geografisk indkomstspredning i fremskrivningen og dermed en mindsket polarisering

Incomplete financial markets and jumps in asset prices

For incomplete financial markets, jumps in both prices and consumption can be unavoidable. We consider pure-exchange economies with infinite horizon, discrete time, uncertainty with a continuum of possible shocks at every date. The evolution of shocks follows a Markov process, and fundamentals depend continuously on shocks. It is shown that: (1) equilibria exist; (2) for effectively complete financial markets, asset prices depend continuously on shocks; and (3) for incomplete financial markets, there is an open set of economies U such that for every equilibrium of every economy in U, asset prices at every date depend discontinuously on the shock at that date