F. Riedel, Existence of Arrow-Radner equilibrium with endogenously complete markets under incomplete information, J ECON THEO, 97(1), 2001, pp. 109-122
A stochastic pure exchange economy with incomplete information is studied w
here one risky asset and a locally riskless bond are traded. The underlying
risks are described by a k-dimensional Brownian motion with k greater than
or equal to 2. The Brownian morion is nor directly observable. Agents obse
rve only asset prices and dividends. Existence of an Arrow-Radner equilibri
um is established. In such on equilibrium. asset prices result such that ev
ery informationally feasible consumption plan can be financed by trading in
the risky asset and the bond. In this sense, the resulting asset market is
complete. (C) 2001 Academic Press.