Arrow-Debreu equilibria for rank-dependent utilities with heterogeneous probability weighting

doi:10.1111/mafi.12200

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	Arrow-Debreu equilibria for rank-dependent utilities with heterogeneous probability weighting
	Jin, Hanqing 3,4; Xia, Jianming1 ; Zhou, Xun Yu 2
刊名	MATHEMATICAL FINANCE
	2019-07-01
卷号	29 期号:3 页码:898-927
关键词	Arrow-Debreu equilibrium comonotone Pareto optimum price equilibrium with transfers probability weighting rank-dependent utility state-price density G11
ISSN号	0960-1627
DOI	10.1111/mafi.12200
英文摘要	We study Arrow-Debreu equilibria for a one-period-two-date pure exchange economy with rank-dependent utility agents having heterogeneous probability weighting and outcome utility functions. In particular, we allow the economy to have a mix of expected utility agents and rank-dependent utility ones, with nonconvex probability weighting functions. The standard approach for convex economy equilibria fails due to the incompatibility with second-order stochastic dominance. The representative agent approach devised in Xia and Zhou (2016) does not work either due to the heterogeneity of the weighting functions. We overcome these difficulties by considering the comonotone allocations, on which the rank-dependent utilities become concave. Accordingly, we introduce the notion of comonotone Pareto optima, and derive their characterizing conditions. With the aid of the auxiliary problem of price equilibria with transfers, we provide a sufficient condition in terms of the model primitives under which an Arrow-Debreu equilibrium exists, along with the explicit expression of the state-price density in equilibrium. This new, general sufficient condition distinguishes the paper from previous related studies with homogeneous and/or convex probability weightings.
资助项目	NSFC (National Natural Science Foundation of China)[11231005] ; Columbia University ; Oxford-Man Institute of Quantitative Finance ; Oxford-Nie Financial Big Data Lab
WOS研究方向	Business & Economics ; Mathematics ; Mathematical Methods In Social Sciences
语种	英语
出版者	WILEY
WOS记录号	WOS:000470926900008
内容类型	期刊论文
源URL	[http://ir.amss.ac.cn/handle/2S8OKBNM/34987]
专题	应用数学研究所
通讯作者	Zhou, Xun Yu
作者单位	1.Chinese Acad Sci, Acad Math & Syst Sci, RCSDS, NCMIS, Beijing, Peoples R China 2.Columbia Univ, Dept Ind Engn & Operat Res, New York, NY 10027 USA 3.Univ Oxford, Math Inst, Oxford, England 4.Univ Oxford, Oxford Nie Financial Big Data Lab, Oxford, England
推荐引用方式 GB/T 7714	Jin, Hanqing,Xia, Jianming,Zhou, Xun Yu. Arrow-Debreu equilibria for rank-dependent utilities with heterogeneous probability weighting[J]. MATHEMATICAL FINANCE,2019,29(3):898-927.
APA	Jin, Hanqing,Xia, Jianming,&Zhou, Xun Yu.(2019).Arrow-Debreu equilibria for rank-dependent utilities with heterogeneous probability weighting.MATHEMATICAL FINANCE,29(3),898-927.
MLA	Jin, Hanqing,et al."Arrow-Debreu equilibria for rank-dependent utilities with heterogeneous probability weighting".MATHEMATICAL FINANCE 29.3(2019):898-927.