What is Arrow Debreu security?
In financial economics, a state-price security, also called an Arrow–Debreu security (from its origins in the Arrow–Debreu model), a pure security, or a primitive security is a contract that agrees to pay one unit of a numeraire (a currency or a commodity) if a particular state occurs at a particular time in the future …
What mathematical tool is used to show that an economy with more than two commodities has a competitive equilibrium?
The mathematical tool is something called separating hyperplane theorem.
What is walrasian equilibrium?
A Walrasian equilibrium is a vector of prices, and a consumption bundle for each agent, such that (i) every agent’s consumption maximizes her utility given prices, and (ii) markets clear: the total demand for each commodity just equals the aggregate endowment.
What is Arrow Debreu model of general equilibrium?
In mathematical economics, the Arrow–Debreu model suggests that under certain economic assumptions (convex preferences, perfect competition, and demand independence) there must be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy.
What is state price approach?
A state price security is a contract that agrees to pay one unit of a commodity or currency if a particular state is reached but otherwise pays zero. The price of this type of security is called the state price.
What is Walrasian model?
A Walrasian market is an economic model of a market process in which orders are collected into batches of buys and sells and then analyzed to determine a clearing price that will decide the market price. This is also referred to as a call market.
What is Walrasian analysis?
What Is Walras’s Law? Walras’s law is an economic theory, which states that the existence of excess supply in one market must be matched by excess demand in another market so that both factors are balanced out. Walras’s law asserts that an examined market must be in equilibrium if all other markets are in equilibrium.
What is general equilibrium allocation?
General equilibrium puts together consumer choice and producer theory to find sets of prices that clear many markets. It was pioneered by Kenneth Arrow, Gerard Debreu, and Lionel Mackenzie in the late 1950s. Many economists consider general equilibrium to be the pinnacle of economic analysis.
What is no arbitrage principle?
Derivatives are priced using the no-arbitrage or arbitrage-free principle: the price of the derivative is set at the same level as the value of the replicating portfolio, so that no trader can make a risk-free profit by buying one and selling the other.
What is state price density?
Introduction. The state price density (SPD) defines a probability distribution under which the expected returns on financial assets are equal to the risk-free rate. As shown by Harrison and Kreps (1979), the SPD exists if the market is arbitrage-free, and it is unique if the market is complete.