TY - JOUR
AU - Judd,Kenneth L.
AU - Guu,Sy-Ming
TI - Asymptotic Methods for Asset Market Equilibrium Analysis
JF - National Bureau of Economic Research Working Paper Series
VL - No. 8135
PY - 2001
Y2 - February 2001
DO - 10.3386/w8135
UR - http://www.nber.org/papers/w8135
L1 - http://www.nber.org/papers/w8135.pdf
N1 - Author contact info:
Kenneth L. Judd
Hoover Institution
Stanford University
Stanford, CA 94305-6010
Tel: 650/723-5866
Fax: 650/723-1687
E-Mail: JUDD@HOOVER.STANFORD.EDU
AB - 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.
ER -