Complete and Incomplete Financial Markets in Multi-Good Economies

36 Pages Posted: 14 Jul 2009 Last revised: 25 Oct 2015

See all articles by Paul Ehling

Paul Ehling

BI - Norwegian Business School

Christian Heyerdahl-Larsen

Indiana University - Kelley School of Business - Department of Finance

Date Written: October 19, 2015

Abstract

We investigate conditions for endogenous incompleteness and completeness in continuous-time financial markets driven by diffusion processes with multiple consumption goods and heterogeneous agents. We show that for a class of utility functions the financial market is endogenously incomplete. A sufficient condition for market completeness is that the dividend diffusion matrix in units of the numeraire good is invertible. Further, financial market completeness can depend on the choice of the numeraire good since changing the numeraire good implies a change of the risk-free asset and the asset structure.

Keywords: Multi-good economies, Financial market incompleteness, Financial market completeness

JEL Classification: G10, G11

Suggested Citation

Ehling, Paul and Heyerdahl-Larsen, Christian, Complete and Incomplete Financial Markets in Multi-Good Economies (October 19, 2015). EFA 2008 Athens Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1102364 or http://dx.doi.org/10.2139/ssrn.1102364

Paul Ehling

BI - Norwegian Business School ( email )

N-0442 Oslo
Norway
+47 46410505 (Phone)

Christian Heyerdahl-Larsen (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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