Abstract
Assuming that an equilibrium exists, this chapter characterizes the economic equilibrium. The key result in this chapter is a characterization of the equilibrium supermartingale deflator as a function of the economy’s primitives: beliefs, preferences, and endowments. Indeed, using a representative trader economy equilibrium that reflects the equilibrium in the original economy, an equilibrium supermartingale deflator is characterized as a function of the representative trader’s (aggregate) utility function and aggregate market wealth. Finally, this chapter derives the intertemporal capital asset pricing model (ICAPM) and the consumption capital asset pricing model (CCAPM) as special cases of this characterization.
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Jarrow, R.A. (2018). Characterizing the Equilibrium. In: Continuous-Time Asset Pricing Theory. Springer Finance(). Springer, Cham. https://doi.org/10.1007/978-3-319-77821-1_15
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DOI: https://doi.org/10.1007/978-3-319-77821-1_15
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