Endogenous Inverse Demand Functions

Maxim Bichuch, Zachary Feinstein

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

In this work we present an equilibrium formulation for price impacts. This is motivated by the Bühlmann equilibrium in which assets are sold into a system of market participants, for example, a fire sale in systemic risk, and can be viewed as a generalization of the Esscher premium. Existence and uniqueness of clearing prices for the liquidation of a portfolio are studied. We also investigate other desired portfolio properties including monotonicity and concavity. Price per portfolio unit sold is also calculated. In special cases, we study price impacts generated by market participants who follow the exponential utility and power utility.

Original languageEnglish
Pages (from-to)2702-2714
Number of pages13
JournalOper Res
Volume70
Issue number5
DOIs
StatePublished - 1 Sep 2022

Keywords

  • equilibrium liquidation
  • fire sale
  • inverse demand function
  • price impacts
  • risk sharing

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