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Theory of Incomplete Markets : Volume 1 - Michael Magill

Theory of Incomplete Markets

Volume 1

Paperback Published: 22nd February 2002
ISBN: 9780262632546
Number Of Pages: 558
For Ages: 18+ years old

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"The Theory of Incomplete Markets" provides a unified framework for analyzing the real, financial, and monetary sectors of an economy. It describes an innovative theory that takes into account the fact that in order to coordinate their activities and share their risks, agents are forced by the imperfections in their knowledge and their propensity for opportunistic behavior to trade sequentially and to make only limited contractual commitments into the future. This book studies the consequences of trading with such a sequential and incomplete market structure for the equilibria of an economy: competitive markets no longer provide the ideal way of allocating resources and even with rational expectations monetary policy is nonneutral. The theory presented in this book retains the simplicity, coherence, and generality that are the hallmarks of traditional general equilibrium theory, while moving the nature of the markets, contracts, and constraints on agent participation into closer conformity with the actual structure of markets observed in the real world. Students and researchers will appreciate how the book incorporates results from the latest research while remaining accessible to a wide audience. The theory is built from the bottom up, with ample nontechnical motivation and a user-friendly presentation that constantly draws on the reader's economic and geometric intuition. Historical discussions in each chapter help clarify the origins and current limitations of the theory. This is the first of two volumes. Volume 1 focuses on the role and functioning of financial markets in a competitive setting. Volume 2 will study more general models that combine the real and financial sectors of the economy and depart from a purely competitive analysis. In addition to providing basic insights needed to understand the theory of incomplete markets, this volume provides the essential tools needed to understand the more general analysis of Volume 2.

Industry Reviews

"Authoritative and comprehensive, yet comprehensible. A remarkableblend of rigorous elegance and economic wisdom." Jacques H. Dreze, CORE, Belgium " Theory of Incomplete Markets is a very thorough book which contains an excellent introduction into some recent research in the active area of incomplete markets." T. Hens, Journal of Economics "Magill and Quinzii have carefully and cogently summarized a large body of recent research on general equilibrium models of incomplete security markets. In its treatment of everything from the basic mathematical tools through to such applications as production and the role of money, Theory of Incomplete Markets is definitive, and is likely to remain so for a long time." J. Darrell Duffie , Professor of Finance, Graduate School ofBusiness, Stanford University

Part 1 Introduction: main themes; bounded rationality, opportunism and structure of markets; rational expectations; the equilibrium model; real and financial sectors of the economy. Part 2 Two-period finance economy - motivation and summary: characteristics of the finance economy; contingent market equilibrium; financial market equilibrium; absence of arbitrage; no-arbitrage equilibrium; a basic property of incomplete markets; constrained pareto optimality; abstract approach - adjoint equations. Part 3 Two-period security pricing - motivation and summary: inner product, differential and gradient; valuation of income streams; representative agent analysis; capital asset pricing model (CAPM). Part 4 Stochastic financial economy - motivation and summary: event-tree commodity space; stochastic exchange economy; stochastic financial markets; absence of arbitrage; complete and incomplete markets; no-arbitrage equilibrium; example of non-existence; existence and optimality. Part 5 Information efficiency of security prices - motivation and summary: conditional expectation and martingale; efficient markets under risk neutrality; efficient markets with risk aversion. Part 6 Production in a finance economy - motivation and summary: characteristics of production economy; sole proprietorships; partnerships; corporations. Part 7 Monetary economy - motivation and summary: real and nominal contracts; monetary equilibrium; non-neutrality of monetary policy; optimal monetary policy; indexing contracts.

ISBN: 9780262632546
ISBN-10: 0262632543
Series: The MIT Press : Book 1
Audience: Professional
For Ages: 18+ years old
Format: Paperback
Language: English
Number Of Pages: 558
Published: 22nd February 2002
Publisher: MIT Press Ltd
Country of Publication: US
Dimensions (cm): 26.04 x 17.15  x 3.18
Weight (kg): 1.16