Project C5: Financial equilibria under Knightian uncertainty

Summary:

This project continues the study of financial market equilibria under Knightian uncertainty on the basis of the previous funding period that developed general equilibrium theory with sublinear prices under Knightian uncertainty in a static setting. In the coming years, the insights gained so far will be used to develop the corresponding dynamic general equilibrium, both in discrete as in continuous time, and to draw important economic conclusions for concrete applications. In the light of the recent new regulation of markets (Basel III, IV, Solvency II etc.), it is important to understand the consequences of regulatory measures on equilibrium outcomes. As regulation is based on risk measures (Expected Shortfall, e.g.) that create sublinear constraints for financial agents, we believe that our general theory shall apply to this important question. On the other hand, the mathematical foundational work of the previous period should allow to study consumption-based capital asset pricing models in heterogeneous economies.

Recent Preprints: