Incomplete financial markets and jumps in asset prices

Hervé Crès, Tobias Markeprand, Mich Tvede

Research output: Contribution to journalArticlepeer-review


For incomplete financial markets, jumps in both prices and consumption can be unavoidable. We consider pure-exchange economies with infinite horizon, discrete time, uncertainty with a continuum of possible shocks at every date. The evolution of shocks follows a Markov process, and fundamentals depend continuously on shocks. It is shown that: (1) equilibria exist; (2) for effectively complete financial markets, asset prices depend continuously on shocks; and (3) for incomplete financial markets, there is an open set of economies U such that for every equilibrium of every economy in U, asset prices at every date depend discontinuously on the shock at that date.

Original languageEnglish (US)
Pages (from-to)201-219
Number of pages19
JournalEconomic Theory
Issue number1-2
StatePublished - Jun 1 2016


  • Financial markets
  • General equilibrium
  • Jumps in asset prices

ASJC Scopus subject areas

  • Economics and Econometrics


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