Asymptotic Methods for Asset Market Equilibrium Analysis / Kenneth L. Judd, Sy-Ming Guu.

Format:

Book

Author/Creator:

Judd, Kenneth L.

Contributor:

National Bureau of Economic Research.

Guu, Sy-Ming.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8135.

NBER working paper series no. w8135

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

General equilibrium analysis is difficult when asset markets are incomplete. We make the simplifying assumption that uncertainty is small and use bifurcation methods to compute Taylor series approximations for asset demand and asset market equilibrium. A computer must be used to derive these approximations since they involve large amounts of algebraic manipulation. To illustrate this method, we apply it to analyzing the allocative, price, and welfare effects of introducing a new derivative security. We find that the introduction of any derivative will raise the value of the risky asset relative to bonds.

Notes:

Print version record

February 2001.