An incomplete equilibrium with a stochastic annuity

DOI10.1007/S00780-020-00415-6MaRDI QIDQ2308176zbMATH OpenOpenAlexFDO

Authors Kim Weston, Gordan Žitković

Publication date 25 March 2020

Published in Finance and Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1809.05947

zbMATH Keywords

incomplete marketsannuityBSDERadner equilibriumunspanned incomesystems of BSDEs

Mathematics Subject Classification ID

Financial markets (91G15) Applications of stochastic analysis (to PDEs, etc.) (60H30)

Abstract: We prove the global existence of an incomplete, continuous-time finite-agent Radner equilibrium in which exponential agents optimize their expected utility over both running consumption and terminal wealth. The market consists of a traded annuity, and, along with unspanned income, the market is incomplete. Set in a Brownian framework, the income is driven by a multidimensional diffusion, and, in particular, includes mean-reverting dynamics. The equilibrium is characterized by a system of fully coupled quadratic backward stochastic differential equations, a solution to which is proved to exist under Markovian assumptions.

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Cited in

(12)

• Existence of an equilibrium with limited participation
• A multi-agent incomplete equilibrium model and its applications to reinsurance pricing and life-cycle investment
• A reputation game on cyber-security and cyber-risk calibration
• Existence of an endogenously complete equilibrium driven by a diffusion
• Equilibrium price formation with a major player and its mean field limit
• Radner equilibrium in incomplete Lévy models
• An example of a stochastic equilibrium with incomplete markets
• Incomplete stochastic equilibria with exponential utilities close to Pareto optimality
• Uniqueness of equilibrium with survival probability heterogeneity and endogenous annuity price
• Price impact in Nash equilibria
• Strong Convergence to the Mean Field Limit of a Finite Agent Equilibrium
• Radner equilibrium and systems of quadratic BSDEs with discontinuous generators

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