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Author: | Antinolfi, G. Keister, T. |
Title: | Options and sunspots in a simple monetary economy |
Journal: | Economic Theory
1998 : VOL. 11:2, p. 295-315 |
Index terms: | MONETARY ECONOMICS OPTIONS TRADE COMPARATIVE ADVANTAGE LOSS |
Language: | eng |
Abstract: | This paper explores sunspot immunity in a simple monetary economy in which consumers are allowed to trade put and call option contracts on the general price level. To characterize economies that have no sunspot equlibria regardless of the number of extrinsic states and their probabilities of occurrence, this paper defines the concept of strong sunspot immunity. A small number of option contracts can make an economy strongly sunspot immune. It is demonstrated how asset re-trading opportunities, and the associated capital gains and losses, reduce the number of options needed for this result to obtain. |
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