Valuation in infinite-horizon sequential markets with portfolio constraints |
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Authors: | Kevin X.D. Huang |
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Affiliation: | (1) Department of Economics, Utah State University, 3530 Old Main Hill, Logan, UT 84322-3530, USA (e-mail: khuang@b202.usu.edu) , US |
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Abstract: | Summary. We develop a theory of valuation of assets in sequential markets over an infinite horizon and discuss implications of this theory for equilibrium under various portfolio constraints. We characterize a class of constraints under which sublinear valuation and a modified present value rule hold on the set of non-negative payoff streams in the absence of feasible arbitrage. We provide an example in which valuation is non-linear and the standard present value rule fails in incomplete markets. We show that linearity and countable additivity of valuation hold when markets are complete. We present a transversality constraint under which valuation is linear and countably additive on the set of all payoff streams regardless of whether markets are complete or incomplete. Received: March 9, 2000; revised version: February 13, 2001 |
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Keywords: | and Phrases: Valuation Infinite horizon Portfolio constraint. |
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