A Solution Method for Incomplete Asset Markets wih Heterogeneous Agents

26 September 2002

preprint
Published by Elsevier in SSRN Electronic Journal

https://doi.org/10.2139/ssrn.900165

Abstract

This paper examines a dynamic, stochastic endowment economy with two agents and two financial securities. Markets are incomplete and agents can have heterogeneous tastes. We develop a new computational method to solve the dynamic general equilibrium model. We allow for various forms of portfolio constraints, transaction costs, and portfolio penalties.

Keywords

INCOMPLETE
MARKETS
PORTFOLIO
STOCHASTIC
PENALTIES
ECONOMY
CONSTRAINTS
ASSET
TRANSACTION
TASTES

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