Cass existence approach of financial equilibria when portfolios are constrained 1

It is well known that equilibrium asset prices will not offer arbitrage opportunities to individuals. Using an approach that dates back to Cass (1984) [4], we seek to isolate arbitrage free asset prices that are also equilibrium asset prices. However we do this when each agent’s portfolio choice is restricted to a closed, convex set containing zero (as in Siconolfi [23]). In the presence of such portfolio restrictions we need to confine our attention to strong-arbitrage-free asset prices. We also describe a considerably weak condition on the space of income transfers that ensure these asset prices to be part of a financial equilibrium. Staying in the Cass [4] framework, we consider an exchange economy with nominal assets, but allow for multiple (finite) periods and very general preference relations. Moreover we show the existence theorem using the approach of Martins Da-Rocha and Triki [6], and hence do not resort to the Cass trick.