Time, Uncertainty and Incomplete Markets
In this chapter, we discuss the model of an exchange economy presented in Chapter 8 without Assumption c3, i.e., we introduce time and uncertainty. In Section 1, we present that more general framework keeping Assumption h5 — market completeness, and we discuss the need for its removal and the introduction of a financial side of the economy. In Section 2, we formalize a way of introducing financial assets, define the notion of complete financial markets and study the relationship with complete markets. Finally, the definition of incomplete financial markets is given and the main fundamental results, which are going to be shown in the following chapters, are summarized.
KeywordsFinancial Market Financial Asset Return Matrix Price Vector Incomplete Market
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