Taylor approximation of incomplete Radner equilibrium models (Q2516775): Difference between revisions

The authors prove first that an incomplete equilibrium exists in a multidimensional autoregressive Brownian setting with heterogeneous exponential utility investors. They construct a class of incomplete models for which the equilibrium is described by coupled Riccati equations. Further, they show that this tractable class of models can be used as a Taylor approximation of the general class of models they first considered. Finally, they construct an example showing that the established rate of convergence cannot be improved.