STAR-seminars: Arne Løkka

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The webinars will take place on Zoom and a link to the virtual room will be sent out to all those who registered at the registration page.

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Speaker: Arne Løkka - London School of Economics

Title: Foreign exchange equilibrium, international trade and trading costs

Abstract: In this paper we prove existence and uniqueness of an equilibrium for an international economy consisting of two separate economies and a complete financial market. Each economy produce a single perishable good and trade between the two economies carries proportional trading costs. In each economy there are a number of agents aiming to maximise their expected utility of consumption of the single perishable good. We draw on the methods used for the one economy case using the Negishi argument, and obtain semi-explicit formulas for the equilibrium solutions. In order to prove uniqueness, we establish that for any equilibrium, the consumptions must be Pareto optimal. To account for the costs of trading between the economies, this requires a modification of the standard notion of feasible allocations and Pareto optimality. Our results therefore generalise the theory for the one economy in a number of interesting ways that offer new insights and perspectives. Models of international economies with proportional trading costs have received a lot of attention in economics, but as far as we know, existence and uniqueness of an equilibrium have not rigorously been established.

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This series of webinars addresses all interested people in probability, stochastic analysis, control, risk evaluation, statistics, with a view towards applications, in particular to renewable energy markets and production. This series brings together the major research themes of the projects STORMSCROLLER, and SPATUS

Published Mar. 26, 2021 12:34 PM - Last modified Apr. 16, 2021 10:38 AM