Fri, 28 Nov 2008
14:15
14:15
DH 1st floor SR
Financial Market Equilibria with Cumulative Prospect Theory
Enrico De Giorgi
(Lugano)
Abstract
The paper shows that financial market equilibria need not exist if agents possess cumulative prospect theory preferences with piecewise-power value functions. The reason is an infinite short-selling problem. But even when a short-sell constraint is added, non-existence can occur due to discontinuities in agents' demand functions. Existence of equilibria is established when short-sales constraints are imposed and there is also a continuum of agents in the market