Econometrica: May 1979, Volume 47, Issue 3
The Arrow-Debreu Model Extended to Financial Markets
Peter H. FriesenThe Arrow-Debreu model is extended to include a sequential market model with financial markets. This is done by dropping the contingent contracts from the Arrow-Debreu model, leaving only a sequence of spot markets for commodities. The resulting market structure is inefficient. Efficiency is restored with a sequence of stock markets and option markets. In addition, consumers are shown to be unanimous in wanting each firm to maximize the price of its common stock.
Log In To View Full Content