California. Proposed Running Head: Incomplete Markets Equilibria

Duffie, Darrell — Stochastic Equilibria with Incomplete Financial Markets We demonstrate the existence of equilibria with incomplete financial markets for stochastic economies whose information structure is given by an event tree, re-stricting attention to purely financial securities, those paying in units of account (e.g. “dollars”). Financial markets may be incomplete: some consumption streams may be impossible to obtain by any trading strategy. Securities may be individu-ally precluded from trade at arbitrary states and dates. Sufficient conditions for the existence of stochastic equilibria are: continuous, convex, strictly monotonic prefer-ences and strictly positive aggregate endowments. These conditions are weakened. A corollary states that any regime of security prices precluding arbitrage can be embedded in an equilibrium. J.Econ.Theor