Background risk and the theory of the competitive firm under uncertainty

Article Abstract:

The sources of uncertainty on the optimal production decision of a firm are modelled based on Kimball's standard risk aversion and Ross' stronger measures of risk aversion. The effects of output price risk and background risk on a firm's output are analyzed. Sufficient conditions for the transformation of the background risk to achieve an unambiguous negative result are also discussed.

Analysis, Competition (Economics), Uncertainty

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Spanning with American options

Article Abstract:

Multiperiod American options generate dynamically complete markets while multiperiod European options do not. Example of an economy in which multiperiod American options generically exist on a primitive security, generating dynamically complete markets is presented.

United States, Europe, Models, Options (Finance), Stock markets, Stock market

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