3.6Microeconomic equilibrium
The aim of this section is to provide a brief introduction to the theory of market equilibrium. Prices of assets will no longer be given in advance. Instead, they will be derived from “first principles” in a microeconomic setting where different agents demand asset profiles in accordance with their preferences and with their budget constraints. These budget constraints are determined by a given price system. The role of equilibrium prices consists in adjusting the constraints in such a way that the resulting overall demand is matched by the overall supply of assets.
Consider a finite set A of economic agents and a convex set X ⊂ L0(Ω,F, P) of admissible claims. At time t = 0, each agent a ∈ A has an initial endowment ...
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