Radner equilibrium and systems of quadratic BSDEs with discontinuous generators
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Escauriaza, Luis
Schwarz, Daniel
Xing, Hao
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First author draft
Citation
Luis Escauriaza, Daniel Schwarz, Hao Xing. "Radner equilibrium and systems of quadratic BSDEs with discontinuous generators." Submitted to Annals of Applied Probability. https://arxiv.org/abs/2008.03500v3
Abstract
Motivated by an equilibrium problem, we establish the existence of a solution for a family of Markovian backward stochastic differential equations with quadratic nonlinearity and discontinuity in Z. Using unique continuation and backward uniqueness, we show that the set of discontinuity has measure zero. In a continuous-time stochastic model of an endowment economy, we prove the existence of an incomplete Radner equilibrium with nondegenerate endogenous volatility.