In a three-period finite competitive exchange economy with incomplete financial markets and retrading, we study the possibility of controlling asset price volatility through financial innovation. We first give sufficient conditions on preferences and endowments implying that whatever is the...

In a three-period finite exchange economy with incomplete financial markets and retrading, we study the effects of the degree of incompleteness and of changes in the financial structure on asset price volatility. In what are essentially no aggregate risk economies, asset price volatility is a...