On the equivalence of financial structures with long-term assets

Jean-Marc Bonnisseau (1, 2) , Achis Chery (1)

1 PSE - Paris School of Economics
2 CES - Centre d'économie de la Sorbonne

In a stochastic financial exchange economy, two financial structures are equivalent if, for each given state price, the marketable payoffs are identical for the associated asset prices. The key property of two equivalent financial structures is that, when associated with any standard exchange economy, they lead to the same financial equilibrium. We exhibit a sufficient condition for the equivalence of two financial structures without re-trading with possibly long-term assets. We then apply this result to financial structures built upon primitive assets and their re-trading. We also borrow an assumption from Bonnisseau and Chéry (Ann Financ 10:523–552, 2014) to prove the equivalence between a financial structure and its reduced forms.

Keywords: Equivalent financial structures; financial equilibrium; multi-period model; long-term assets; financial sub-structure; reduced forms

Domains: Economics and Finance

Jean-Marc Bonnisseau, Achis Chery. On the equivalence of financial structures with long-term assets. Mathematics and Financial Economics, 2017, 11, pp.25-44. ⟨10.1007/s11579-016-0169-5⟩. ⟨halshs-01297918⟩