Computing equilibria in stochastic finance economies

Felix Kubler; Karl H Schmedders

doi:10.1023/a:1008651229355

Computing equilibria in stochastic finance economies

Felix Kubler^*, Karl H Schmedders

^*Corresponding author for this work

EMBA Evanston

Research output: Contribution to journal › Article › peer-review

13 Scopus citations

Abstract

We describe a homotopy algorithm for the computation of equilibria in Stochastic Finance Economies. The algorithm solves a nonlinear system of equations consisting of the first-order conditions of the agents' utility maximization problems and market-clearing conditions. Moreover, we discuss the use of a straightforward homotopy approach for local comparative statics. Using our methods we evaluate price, volatility, and welfare effects of options in incomplete asset markets.

Original language	English (US)
Pages (from-to)	145-172
Number of pages	28
Journal	Computational Economics
Volume	15
Issue number	1-2
DOIs	https://doi.org/10.1023/a:1008651229355
State	Published - 2000

Keywords

Homotopy algorithm
Incomplete markets
Index theorem
Stochastic finance economy

ASJC Scopus subject areas

Economics, Econometrics and Finance (miscellaneous)
Computer Science Applications

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10.1023/a:1008651229355

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title = "Computing equilibria in stochastic finance economies",

abstract = "We describe a homotopy algorithm for the computation of equilibria in Stochastic Finance Economies. The algorithm solves a nonlinear system of equations consisting of the first-order conditions of the agents' utility maximization problems and market-clearing conditions. Moreover, we discuss the use of a straightforward homotopy approach for local comparative statics. Using our methods we evaluate price, volatility, and welfare effects of options in incomplete asset markets.",

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AU - Schmedders, Karl H

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AB - We describe a homotopy algorithm for the computation of equilibria in Stochastic Finance Economies. The algorithm solves a nonlinear system of equations consisting of the first-order conditions of the agents' utility maximization problems and market-clearing conditions. Moreover, we discuss the use of a straightforward homotopy approach for local comparative statics. Using our methods we evaluate price, volatility, and welfare effects of options in incomplete asset markets.

KW - Homotopy algorithm

KW - Incomplete markets

KW - Index theorem

KW - Stochastic finance economy

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Computing equilibria in stochastic finance economies

Abstract

Keywords

ASJC Scopus subject areas

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