EQUILIBRIUM IN INCOMPLETE MARKETS: II. GENERIC EXISTENCE IN STOCHASTIC ECONOMIES

This paper demonstrates the generic existence of equilibria with incomplete markets in a stochastic economy. Uncertainty is represented by an event tree. Securities that are claims to bundles of commodities and units of account at future dates, contingent on states of the world, are sold at each date and state. There is an insufficient number of securities to complete markets, even with the spanning advantages of repeated trade through time. Preferences are "smooth". We include partial results for linear restrictions on trading strategies, and show that security prices may be assigned to be the conditional expected sum of the future spot market values of dividends