Stochastic equilibria with incomplete financial markets (Q1087461)

We demonstrate the existence of equilibria with incomplete financial markets for stochastic economies whose information structure is given by an event tree, restricting attention to purely financial securities, those paying in units of account (e.g., ''dollars''). Financial markets may be incomplete: some consumption streams may be impossible to obtain by any trading strategy. Securities may be individually precluded from trade at arbitrary states and dates. Sufficient conditions for the existence of stochastic equilibria are: continuous, convex, strictly monotonic preferences and strictly aggregate endowments. These conditions are weakened. A corollary states that any regime of security prices precluding arbitrage can be embedded in an equilibrium.