Elimination of arbitrage states in asymmetric information models |
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| Authors: | Bernard Cornet Lionel De Boisdeffre |
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| Affiliation: | 1.Department of Economics,University of Kansas and CERMSEM, Université de Paris 1,Paris,France;2.INSEE (CREST),Paris,France;3.CERMSEM, Université de Paris 1,Paris,France |
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| Abstract: | ![]()
In a financial economy with asymmetric information and incomplete markets, we study how agents, having no model of how equilibrium prices are determined, may still refine their information by eliminating sequentially “arbitrage state(s)”, namely, the state(s) which would grant the agent an arbitrage, if realizable. |
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| Keywords: | Arbitrage Incomplete markets Asymmetric information Information revealed by prices |
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