Endogenous collateral: arbitrage and equilibrium without bounded short sales
We study the implications of the absence of arbitrage in an two period economy where default is allowed and assets are secured by collateral choosen by the borrowers. We show that non arbitrage sale prices of assets are submartingales, whereas non arbitrage purchase prices of the derivatives (secure...
| Autores: | , , |
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| Tipo de recurso: | artículo |
| Estado: | Versión publicada |
| Fecha de publicación: | 2001 |
| País: | Brasil |
| Institución: | Fundação Getulio Vargas (FGV) |
| Repositorio: | Repositório Institucional do FGV (FGV Repositório Digital) |
| Idioma: | inglés |
| OAI Identifier: | oai:repositorio.fgv.br:10438/799 |
| Acceso en línea: | http://hdl.handle.net/10438/799 |
| Access Level: | acceso abierto |
| Palabra clave: | Endogenous collateral Non arbitrage Economia Equilíbrio econômico |
| Sumario: | We study the implications of the absence of arbitrage in an two period economy where default is allowed and assets are secured by collateral choosen by the borrowers. We show that non arbitrage sale prices of assets are submartingales, whereas non arbitrage purchase prices of the derivatives (secured by the pool of collaterals) are supermartingales. We use these non arbitrage conditions to establish existence of equilibrium, without imposing bounds on short sales. The nonconvexity of the budget set is overcome by considering a continuum of agents. Our results are particularly relevant for the collateralized mortgage obligations(CMO) markets. |
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