2006 Reports
General equilibrium with endogenous uncertainty and default
In this paper we study the introduction of new assets which are oftenly observed to be defined in expected values rather than state by state, called the Arrow-Lind-Malinvaud (ALM) assets. We demonstrate that individual default emerges naturally in an economy where such ALM assets are introduced without completing all contingency markets. We further provide conditions under which individual default is propagated endogenously into a collective risk of widespread default in general equilibrium.
Subjects
Files
- econ_0506_29.pdf application/pdf 336 KB Download File
More About This Work
- Academic Units
- Economics
- Publisher
- Department of Economics, Columbia University
- Series
- Department of Economics Discussion Papers, 0506-29
- Published Here
- March 28, 2011
Notes
May 2006